Reports in the media that ministers and industry leaders are concerned about the pace of the UK’s review of financial regulation highlight the importance of upcoming proposals for bank and insurer capital to the wider UK economy. What these views understate, nonetheless, is just how different the UK’s financial services regulatory environment will be following its departure from the EU.
The EU makes financial regulation through a legislative process that can take two or more years. Since Brexit, the UK plans to delegate more rule-making to regulators and ensure that revisions can be consulted on and adopted much more quickly. So, while the EU may have been first out of the blocks in proposing revisions to Solvency II and the Basel capital framework, it does not necessarily mean that it will cross the finish line first.
Furthermore, not all upcoming initiatives will necessarily be deregulatory. Some, such as the implementation of Basel 3.1, will actually impose new requirements on banks. Deciding how to design these rules in a way that also allows the economy to prosper will require a careful impact assessment – the UK’s new, nimbler, regulatory process should allow plenty of time and scope for this.
A resilient financial services industry is central to the competitiveness of the country and the wellbeing of its people. If regulators, politicians and industry can work together to reform the capital regime to further those broader interests – that will be the real prize.
This letter was published in the Financial Times on 2 March 2022: Letter: Brexit Britain is chance for financial services reform | Financial Times (ft.com)
The UK is also lagging behind the EU on banking reforms, known as the finalisation of Basel III. The EU published its proposals last October, while the BoE is only due to begin industry engagement in the second half of this year, with proposals not expected until 2023.