The evolving UK finance services regime

1. Update: Financial Services Mutual Recognition

There’s been no news last week about interim progress on the UK-EU Financial Services Memorandum of Understanding (MoU) effort (possibly not helped by recent legal disputes concerning Covid vaccines).

Last week, Delano published an interview between the UK ambassador to Luxembourg and the CEO of Luxembourg for Finance. While debating the Memorandum of Understanding, the ambassador confirmed any equivalence decisions would not be included in the MoU and would remain an “outstanding question”; he also stated:

“…in whatever sector, including financial services, we retain the right to regulate. We’ve already announced some areas where we do intend to diverge. But what we’ve also said consistently, again, …is that we’re not going to diverge for the sake of it.”

2. UK progresses with Swiss MoU and Australia, New Zealand trade deals

This week, the UK government announced their intention to “move forward with negotiations on the ambition of delivering a comprehensive mutual recognition agreement” with Switzerland. The UK Finance minister said this “would reduce costs and barriers for UK financial services firms accessing the Swiss market, and vice versa”.

In addition, GovUK are apparently set to secure post-Brexit trade deals with Australia and New Zealand, both members of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) alongside Canada, Mexico, Peru, Chile, Brunei, Singapore, Malaysia, Vietnam and Japan.

3. UK Fund Regime developments

Since last time, the UK is reportedly moving on several fronts to construct their post-EU funds regime.

While the UK has currently the largest Investment Management sector in Europe (37% market share / €8.7 trillion total AUM), it languishes behind Luxembourg, Ireland, Germany and France as a Fund Domicile (with only 10% / €1.5 trillion of total net assets). In their attempt to redress the balance in their favour, the UK Treasury has this week issued a call for input as part of their review of the UK funds regime (closing on 23 February). The document, which can be downloaded at www.gov.uk, has more than 30 questions focused on three areas: tax arrangements, regulation, and opportunities for wider reforms.

This follows the Financial Conduct Authority’s (FCA) continuing series of consultations covering new rules for a UK prudential regime for investment firms (the UK IFPR) set to apply from 1 January 2022.

Elsewhere, GovUK has repeated their commitment (last November) to back the Investment Association’s (IA) plans to launch a UK long-term asset fund (LTAF) structure in 2021.

Finally, the UK Treasury has also launched a consultation and call for evidence covering the UK’s necessary regulatory approach to cryptoassets and stablecoins. Views are sought on how the UK can ensure its regulatory framework “is equipped to harness the benefits of new technologies, supporting innovation and competition, while mitigating risks to consumers and stability”.

NB: as this follows recent FCA warnings about high cryptoasset risks facing investors, one commentator highlights:

“…an amount of cognitive dissonance in the regulatory space on crypto at the moment.” in the regulatory space on crypto at the moment.”

Opinion, Commentary

• PWC: What’s in store for UK sustainable finance policy? A presentation of takeaways from their recent roundtable with HM Treasury
• Financial Times: EU “will do London no favours” on financial services – c/o former EU commissioner who says the “threat to the Square Mile …reinforces need for reform“.
• The Economist: UK has successfully rolled over EU-trade deals – “but now it gets harder.”