Sunak Calls the Shots: The FCA's New Boss and the UK's Agenda for Financial Services Regulation

While lockdown restrictions start to ease and the green shoots of a post-pandemic world tentatively emerge, two notable developments have come out of the UK government this week. Taken together, these demonstrate not just a regime returning to business as usual, but one anxious to make its own mark on the post-Brexit financial services world.

A New Chief Executive for the FCA

On 22 June, the Chancellor, Rishi Sunak, announced that Nikhil Rathi will be the new Chief Executive of the FCA. Rathi succeeds Christopher Woolard, who acted as interim Chief Executive following Andrew Bailey’s departure in March this year.

Rathi is currently Chief Executive of the London Stock Exchange and was previously a Director in the Financial Services Group at HM Treasury, where he led the Treasury’s work on the UK’s EU and international financial services interests – experience that will be of value in balancing EU equivalence with a pro-growth agenda.

Commenting on his appointment, Rathi reiterates previously stated FCA commitments to embrace technology and take part in efforts on tackling climate change, as well as enforce high standards and ensure the UK is a thought leader in international regulatory standards – evidence of, in Sunak’s words, the “ambitious vision and leadership” that Rathi is expected to bring to the role.  

Upcoming Financial Services Legislation

Buried in the Publications section of the Parliamentary website on 23 June, and rather innocuously titled “Financial Services Update”, the Chancellor’s latest update to Parliament on financial services regulation contains some interesting insights on the UK’s new priorities.

Sunak sets the stage by outlining that future financial services legislation will be determined with UK interests in mind with a view to ensuring the UK remains a world-leading financial centre and, echoing the FCA's principles, maintaining financial stability, market integrity, and consumer protection. In a nod to the ongoing Brexit negotiations, Sunak states that the UK is seeking an “enduring future relationship with the EU [that] would help complement the UK’s leading global role in financial services” and emphasises that a finding of equivalence “will be in the interests of both parties”. This equivalence assessment was meant to be concluded in June but will be delayed.

The Government will implement immediate EU-derived reforms, but with some tailoring to the UK’s interests. For example, a new prudential regime will be put in place that is broadly in line with the EU Investment Firms Prudential Regulation and Directive (expected to come into force in the EU in June 2021), but with divergence in selected areas, such as not requiring PRA-designated investment firms to re-authorise as credit institutions. The FCA have released their initial views, which we will discuss in a separate alert, with further substance on the proposed changes expected, in due course.

The update additionally confirmed that some EU regulation will not be on shored, namely:

• The fourth phase of the Securities Financing Transactions Regulation (“SFTR”), which was to extend securities financing transaction reporting requirements to non-financial counterparties (“NFC”). The UK’s position is that the financial counterparties’ reporting requirements under SFTR adequately capture systemically important NFC trading activity.
• The EU’s new settlement discipline rules, as set out in the Central Securities Depository Regulation (“CSDR”), which had been due to enter into force in February 2021. This will come as a relief to many firms who were not looking forward to grappling with the “buy-in” provisions under this regulation.

Certain tweaks will also be made to existing legislation to make it work better for the UK:

• The Benchmarks Regulation: ensuring continued market access to third-country benchmarks until the end of 2025.
• PRIIPs: initiating a review of some of the disclosure requirements of the controversial retail regime.  
• EMIR REFIT: changes to the European Market Infrastructure Regulation are proposed to improve trade repository data and ensure access to clearing for smaller firms.

The statement as a whole demonstrates a pragmatic yet forward-thinking approach on the part of the UK Government. It remains committed to maintaining a high standard of regulation that ensures an effective outcomes-based approach, whilst maintaining the UK’s prominence as a financial services sector. This will mean broad alignment with international (including EU) standards but with discretion to diverge in a way that is consistent with the UK’s interest and its new place in the world.

Expect further ACA alerts as the Government’s approach to the financial services industry in a post-Brexit world develops.

For more information

Should you have any questions related to the above, please contact Ruth Avenell or your usual ACA consultant or contact us on +44 (0)20 7042 0500.