It has now been two and half years since the UK left the European Union and, with significant legislation expected in the Queen’s Speech it feels like this is the moment for Government to deliver on its promises of embracing the opportunities presented by Brexit. The much-awaited Financial Services Bill is a critical moment in ensuring that the Financial Services Regulatory Framework meets the needs of the UK economy and prioritises the competitiveness of our world leading sector. Industry expectation is high for the Bill, with officials and the Economic Secretary himself stating that this Bill will be FSMA level in scale..
While the thought of detailed legislation around financial services regulation might not be everyone’s cup of tea, the scene is now set and we are all waiting to see whether the Government will grasp the nettle of reform, to establish a framework in legislation that balances policy-holder protection with international competitiveness and flexibility for our world leading sector.
The truth is it has to! Ensuring this legislation delivers on the Government’s objectives will be crucial to enabling the industry to play its full part as investors in the levelling up agenda and the transition to net zero. The Chancellor of the Exchequer, Rishi Sunak, set out an ambitious plan for the Future of Financial Services in the UK with his November 2020 statement to Parliament and his Mansion House Speech in July 2021. This Bill is where we find out how far that ambition goes and the extent of the Government’s commitment to the future of financial services in the UK.
Our expectation is that the Bill will be introduced to Parliament ahead of the Summer Recess in July and will remain a top priority for the ABI and our members for the remainder of this Parliament.
The ABI has been actively engaged with the Government’s consultations on proposals for the reform of the Solvency II regulatory framework and on the Future Regulatory Framework for Financial Services, where a crucial area of the FRF debate has been around competitiveness and economic growth and a new statutory objective for the regulators. In their last consultation, HM Treasury recommended a new secondary objective on international competitiveness and economic growth for the regulators as part of the reforms. While we welcomed this announcement as progress, we remain concerned that anything other than primary objective status will simply change nothing. Indeed, as the Governor of the Bank of England, Andrew Bailey, stated in a November 2021 speech – regulators will always prioritise a primary objective over a secondary. This doesn’t sound much like change to me! Competitiveness is of course supported (or otherwise) by the right legislation, but if the regulator drafting the details is not signed up to it, then with all the best will in the world the UK’s efforts to compete and be the best domestically and globally will fall at the first hurdle.
We are already seeing this played out with the industry’s experience of the UK’s Solvency II reform, where the regulators have repeatedly put forward unnecessary and unjustified cautious proposals that do not align with the Government’s intentions for the review and policy objectives. We expect the Bill will be introduced to Parliament with a secondary objective on competitiveness and this will continue to be an important area of debate and focus as the legislation progresses.
Statutory objectives can only go so far though, and what we want to see alongside the introduction of the Financial Services Bill is a shift in culture from the regulators. While its right that the regulators retain a focus on protecting policyholders and economic stability, to capitalise on the opportunities presented to the UK, this must be accompanied by placing greater priority on pragmatism, flexibility in responding to rapidly changing economic circumstances and technological innovation, as well as placing greater emphasis on the UK’s global standing and competitiveness. This is crucial for the strength of the UK economy as we face a cost-of-living crisis and the existential issue of funding the transition to net zero and tackling the climate crisis. With significant powers now being transferred to the regulators following Brexit and through this Bill, the role of Parliament will also be key in providing effective scrutiny of how the regulators are performing against their objectives and the Government’s economic priorities. How Parliament chooses to scrutinise Parliament is ultimately a matter for Parliament, but our industry has been supportive of calls for a new joint committee to specifically look at financial services regulation – in order to utilise the experience and expertise of members from both Houses.
Unlike most other financial services, particularly banking, insurance has no international standard setter setting the detailed parameters within which the regulators implement the rules. It’s really important therefore that Government takes the opportunity through this legislation to set out strong directions and expectations for the regulators in statute book so that they can be held to account and work effectively with industry and Government.
The stage is now set for the Government to move forward with an ambitious and comprehensive Bill to reform financial services and set the future regulatory framework. The question remains of how brave the Government be in taking the opportunity presented by our departure from the UK. The industry will be watching the Queen’s Speech closely and eagerly awaiting the full details of the Bill when it is introduced to Parliament.