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Rules for the Regulators

Publication date: 29th June 2022 (Revised 19th January 2023)
PDF: Rules for the Regulators Revised Jan 2023

Rules for the Regulators: Regulating Financial Services after Brexit, Politeia’s next publication, calls for a reform of the UK’s approach to financial regulation, post-Brexit.

The author, Barnabas Reynolds, explains that the UK’s current system has two main problems.  First, it reflects the EU approach to law, itself marred by unnecessary and poorly-drafted rules.  Second, it suffers from the practices of the UK regulators.  Both create legal uncertainty.  Both give undue power to our regulators.

As matters stand after Brexit, the government intends to transfer most EU-inherited regulations to the rulebooks of UK financial regulators, for them to modify.  The danger is that this will give the regulators even greater power.  Furthermore, it is not expected that many alterations will be made to the EU-inherited rules, at least in the short term.

Reynolds, who leads his City law firm’s financial services and global regulatory practice, argues that if the new system is to succeed, greater change is needed to the regulatory approach and culture on which it rests.  If, as the government proposes, there is to be a clear, slimmed down, outcomes-based system, the following steps should now be taken.  Reynolds proposes:

A new approach to Financial Services Law

  1. Primary legislation and statutory instruments should be reviewed and redrafted, where necessary, to reflect the common law approach.
  2. The EU’s interpretative (purposive) approach as operated under EU (and civil) law should be ended, the Interpretation Act 1978 and the regulators’ rules accordingly amended.

Regulatory Accountability

  1. The regulators should be required by statute to supervise and enforce predictably in accordance with their rules, ensuring their decisions are consistent between firms which operate businesses of a similar size and scope.
  2. Formal decisions by the regulators should include sufficient explanation to serve as precedents and allow the application of relevant rules.

A Role for the Courts

  1. An appeal process should be available, for a short (defined) time period after the regulators have made significant supervisory or enforcement decisions in relation to their rules. The firm or individual would apply to court to review the merits of the decision, considering:
  2. the meaning of the rule being invoked and confirming or rejecting the action in principle based on whether the conduct in question breached the rule, as properly interpreted in light of available guidance and precedent; and
  3. whether the enforcement penalty is consistent with the regulator’s decisions in similar cases, and whether it is proportionate to other decisions.

Ending EU regulation – quickly

  1. Reforming our regulatory method requires the removal of unnecessary EU-inherited regulations and re-writing those which remain, where appropriate, on common law lines.
  2. The PRA and FCA should set up working parties to revise existing regulations, with a deadline of 11 months for first tranche cuts (to make a significant difference), to come into operation by October 2023, with a deadline of a further 11 months for the remainder.
  3. A Parliamentary select committee should oversee the process, ensuring it is sufficiently ambitious. This committee can call on independent experts to inform its assessment of what is being done.

Notes to Editors

  1. Rules for the Regulators: Regulating Financial Services after Brexit by Barnabas Reynolds will be published by Politeia, 55 Tufton Street, London, SW1P 3QL
  2. Barnabas Reynolds is a partner and head of financial institutions at Shearman & Sterling. He is the author of Restoring UK LawFreeing the UK’s Global Financial Market, (2021) and co-author of The Lawyers Advise:  UK-EU Trade and Cooperation Agreement – Unfinished Business? (2021).
  3. Established in 1995, Politeia is an independent, non-partisan think-tank providing a forum to discuss economic, constitutional and social policy with a particular focus on the role of the state in people’s lives.

Barnabas Reynolds

Barnabas Reynolds is Global Head of Financial Institutions and Financial Services Advisory & Regulatory Group at A&O Shearman. He is the author of Restoring UK Law: Freeing the UK’s Global Financial Market, (2021), The Lawyers Advise: UK-EU Trade and Cooperation Agreement – Unfinished Business? (2021), and Politeia’s new publication, Rules for the Regulators: Regulating Financial Services after Brexit.

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