UK regulatory catch-up
1. UK legal revoke: latest
The House of Lords are currently discussing the Retained EU Law (REUL) Revocation and Reform Bill, drafted by the UK Government to repeal or assimilate all EU law from the UK legal system, by the end of 2023.
There are currently over 3,700 pieces of EU legislation (so far) identified, covering more than 400 unique policy areas. The UK Government admits this list is “not comprehensive”, with more still to be added.
The latest Financial Services & Markets Act (FSMA) 2023 will split EU sector law into ‘delivery tranches’, e.g.
- 1: MiFID II, Solvency II
- 2: PRIIPs, ELTIF, IDD
- 3: UCITS, AIFMD
The Financial Times reports the plan to rapidly repeal this vast amount of legislation at such great speed has drawn “fierce criticism” from legal experts, trade associations and environmental groups alike.
The Confederation of British Industry (CBI) warns this will create “huge uncertainty” for local firms, “mass confusion and disruption” for the public, as the UK lags in GDP projections and ‘Green Growth’ prospects.
2. EU firms market access challenges increase
Before Brexit, the Temporary Marketing Permission Regime (TMPR) was put into place by the Financial Conduct Authority to enable authorised EU firms to continue marketing their funds in the UK. Although available until end-2025, TMPR only covers products that were previously made available (prior to 1 Jan 2021).
The Overseas Fund Regime (OFR) is intended to be the long-term protocol for the FCA to permit foreign funds deemed ‘equivalent’ to UK products to be sold locally. However, despite coming into force nearly one year ago, the OFR remains legally inactive, as the UK Treasury has yet to decide if EEA-UCITS should be formally granted equivalent status.
Legal experts cite the “time consuming and expensive” section 272 FCA authorisation process as the only alternative available for EU firms seeking to market new products. Currently, non-UK firms are waiting more than six months to obtain FCA approval, while the average cost of registering an EU product in the UK has risen from £6,200 to £65,000 (+948%) since 2020.
Ongoing, the FCA is said to forecast they will require two years to work through the current volume of EEA fund applications, while completing the ‘recognition process’ (to transition all EU funds across from the TMPR).
One lawyer suggests that some EU asset managers may opt to “turn their back on the UK market”, altogether.
3.Key consultations: UK-ESG, post-PRIIPs
The FCA’s consultation on their local Sustainability Disclosure Requirements (SDR) regime has now closed.
Most recent industry feedback on the proposals was negative, including:
- The Investment Association (IA): SDR is “overly prescriptive” with “too many legitimate ESG funds excluded”, risking “market instability”.
- UKSIF: the “lack of consistency, clear guidance and metrics” will “risk integrity”
- Financial Inclusion Centre: SDR is “a missed opportunity”, “confused and too narrow in scope“.
- Legal experts: 8,400 overseas funds face clear “practical issues” if SDR rules apply directly.
The UK Treasury Select Committee also raised concerns the SDR proposals (including sustainability product labelling) “could drive funds away from ESG investing“. This prompted the FCA to respond with a 7-page letter. The FCA’s final SDR rules are expected to be published at the end of June 2023.
Elsewhere, the parallel HMT consultation and FCA discussion – to discover a suitable UK retail product disclosure regime to replace PRIIPs – will continue until the first week in March.
4. Consumer Duty update
TISA recently formed a Consumer Duty Working Group with an impressive list of participant member firms.
As the 31 July 2023 deadline approaches, rumours continue of an EMT-type standardised data schema and template being announced, shortly. Watch this space.