UK Chancellor outlines future for financial services post-Brexit
Equivalence decisions for EEA states, green finance and fintech initiatives are at the forefront of the UK government’s priorities.
On 9 November 2020, the UK Chancellor of the Exchequer, Rishi Sunak, delivered a statement setting out plans for the start of a new chapter for UK financial services to ensure that the UK remains “an open, attractive international financial centre” post-Brexit. These plans include the announcement of a set of equivalence decisions for EEA states, as well as proposals for a greener financial services industry, reforming access to the UK’s markets, and growing and investing in fintech.
In conjunction with the Chancellor’s statement, HM Treasury announced a package of equivalence decisions for EEA states, including EU Member States, which will become effective at the end of the transition period on 31 December 2020.
These equivalence decisions do not, however, address the bigger question of the ability of UK firms to access Europe.
Rishi Sunak said: “We are starting a new chapter in the history of financial services and renewing the UK’s position as the world’s pre-eminent financial centre. By taking as many equivalence decisions as we can in the absence of clarity from the EU, we’re doing what’s right for the UK and providing firms with certainty and stability”.
The equivalence decisions span a limited number of financial services areas, including:
- European Market Infrastructure Regulation (EMIR) (Articles 2A and 13): Equivalence will be granted to EEA states for the intragroup exemption, as set out in article 13, with regards to activities subject to the clearing obligation and OTC derivative margin requirements. EEA trading venues will be considered as regulated markets for the purposes of article 2A, confirming the classification of derivative transactions on these markets in relation to requirements under UK EMIR.
- Short Selling Regulation (SSR) (Article 17): EEA firms that have not previously submitted a notification for a market maker exemption under the UK SSR can now do so without needing to be a member of a UK trading venue; instead, they can submit a notification based on being a member of an EEA trading venue.
- Capital Requirements Regulation (CRR): A number of equivalence decisions will be granted so that UK firms will not be subject to increased capital requirements as a result of their EEA state exposures.
- Credit Ratings Agencies Regulation (CRA) (Article 5): Non-systemic credit rating agencies authorised or registered in the EEA will be able to apply to be certified in the UK, subject to certain regulatory requirements.
- Benchmarks Regulation (BMR) (Article 30): Equivalence will be granted so that EEA benchmark administrators will be able to access UK markets and will be able to continue to provide benchmarks to supervised entities in the UK.
The UK government confirmed that it will consider further equivalence decisions if they are in the UK’s interests and that it remains open to further conversations with the EU about its intentions.
The FCA published a response to HM Treasury’s announcement on equivalence that summarises some of the decisions, and what they mean for firms.
Additionally, the government published a guidance document setting out the UK’s approach to equivalence with overseas jurisdictions, which it states will promote “stability, openness and transparency”. The guidance document is accompanied by annexes covering the UK’s approach to onshoring; the lead regulators for each equivalence decision; and a table providing an overview of the UK’s equivalence decisions.
Access to the UK’s Markets
The government highlighted the importance of overseas firms being able to access the UK’s markets in a way that is “predictable, safe and transparent”. As a result, the government announced that it will launch a call for evidence on the UK’s overseas regime before setting out its approach next year.
In order to increase the number of new companies that want to list in the UK, HM Treasury is setting up a taskforce to make recommendations early in 2021 on the UK’s future listings regime.
The government also announced that it will shortly publish a consultation on reforming the UK’s regime for investment funds.
In his statement, the Chancellor emphasised the importance of tackling climate change and protecting the environment, “shifting finance towards a net zero future”. As a result, the UK intends to mandate climate disclosures by large companies and financial institutions across the economy by 2025, which goes further than the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). The UK will be the first G20 country to do so.
The UK also intends to implement a new “green taxonomy”, to classify what is meant by “green”, to help firms and investors clearly understand the impact of their investments on the environment.
Furthermore, the government will issue its first Sovereign Green Bond in 2021, subject to market conditions.
For more information on the government’s green initiatives and accompanying TCFD interim report and roadmap, see UK Announces Climate Focused Financial Services Regime.
To better capitalise on the potential advantages of new technologies such as stablecoins, the government announced that it will publish a consultation to ensure that stablecoins meet the same minimum standards it expects of other payment methods.
In addition, the government has just concluded the first stage of its Payments Landscape Review after publishing a call for evidence in July 2020, and will shortly publish new plans to support the sector.
The Chancellor acknowledged the work of the Bank of England and HM Treasury on further considering whether central banks can issue their own digital currencies, as a complement to cash.
The FCA, the Bank of England, and a number of trade associations have all welcomed the Chancellor’s statement on the UK’s plans for the future of financial services.
The UK’s policy paper on equivalence decisions for EEA states highlights some helpful but very specific areas where EU standards will be good enough for UK firms. However, most had already been announced and relate to areas where transitional arrangements are already in place, making little difference other than signifying the permanence of the arrangements. Therefore, the practical change is not as significant as it might have been. Further, it will be interesting to see the government’s take on the overseas regime when it launches its call for evidence next year.
For now, key focus areas for the government include tackling climate change and the use of green finance, as reinforced by recent speeches by the FCA and the Bank of England. New regulatory approaches in relation to payments and new technologies will also be another area to watch as the UK prepares for life post-Brexit.
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