What’s in the Updated UK Regulatory Initiatives Grid?

On 25 May 2022, the UK’s Financial Services Regulatory Initiatives Forum (“the Forum") published its latest version of the Regulatory Initiatives Grid (“the Grid”).

The Grid aims to present the Forum’s coordinated approach for regulatory initiatives and its revised pipeline for financial services regulation over the next 24 months. Also included is an interactive Dashboard which allows users to filter the Grid by specific criteria; for example by sector, lead regulatory authority and expected impact on firms.

The Forum is made up of representatives of the Bank of England, Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), Payment Systems Regulator, Competition and Markets Authority, and with oversight from HM Treasury.

Taken together with the FCA’s recent Business Plan for 2022/23 and its new three-year Strategy, the Grid provides a comprehensive picture of upcoming regulatory initiatives affecting regulated firms. See here for our summary of the Business Plan and Strategy published last month.

What’s the big picture?

In the Forward to the Grid, Forum co-Chairs Nikhil Rathi, CEO of the FCA and Sam Woods, Deputy Governor of the PRA, underline the significance of the Financial Services and Markets Bill (the "Bill"), introduced in last month’s Queen’s Speech.

This Bill will implement many of the tenets of the UK Government’s Future Regulatory Framework Review, and is intended to overhaul post-Brexit financial services regulation.

The Bill proposes to add new secondary objectives for both the FCA and PRA on promoting economic growth and fostering the competitive position of UK financial services. It will also introduce new regulation for the UK’s capital markets, protect consumers’ access to cash, and encourage innovation. Many measures within the Bill overlap with individual initiatives in the Grid.

One further innovation signalled in the Grid is analysis on the aggregate impact of new regulatory initiatives: at present, the total number of initiatives on the Grid is holding approximately steady but this can give a misleading picture of the volume of changes coming through the pipeline. Future publications of the Grid will provide more information from an impact perspective.

What are the other major themes in this year’s Grid?

New protections for consumers

Arguably the biggest theme of this edition is the new protections for consumers and retail clients. Q3 2022 sees the publication of the FCA’s Policy Statement on the new Consumer Duty – this is expected to confirm a new (twelfth) Principle for Businesses: “A firm must act to deliver good outcomes for retail clients”, along with three Cross-Cutting Rules setting out the behaviours required by the Consumer Duty and four Outcomes representing the key elements of the firm-customer relationship. The new Principle and supporting measures will come into force in Q2 2023.

In Q3 2022, we also expect to see a Policy Statement on the FCA’s proposals on financial promotions for high-risk products, including crypto-assets. This is especially timely in view of the extreme volatility recently experienced in this sector.

Most likely before the end of 2022, we will see the results of the Treasury Consultation on reforming the exemptions on financial promotions to sophisticated and high-net worth investors.

1 January 2023 sees the application of the changed Key Information Document (“KID”) requirements under the UK’s own version of the PRIIPs Regulation.

Pushing ahead on ESG

It comes as no surprise that Environment, Social and Governance (ESG) initiatives run consumer protection a close second in the Grid (and there is some overlap between the two). The highest impact initiative is likely to be the development of the Technical Screening Criteria for the UK’s green taxonomy. The first two Criteria – Climate Change Adaptation and Mitigation – are due to be finalised by the end of 2022, with the remaining four Criteria targeted for end of 2023.

In July 2022, the FCA is expected to publish their Consultation Paper on Sustainability Disclosure Requirements and investment product labels (“SDR”) – this follows Discussion Paper DP21/4 on the same topic published last November.

In Q3 2022, the FCA plans to publish a Consultation Paper on improving diversity within financial services.

Lastly on the ESG agenda, Q4 is expected to see the (FCA) publication of the  fourth Consultation Paper on the Investment Firm Prudential Regime (“IFPR”), which will integrate ESG disclosures into the new MIFIDPRU rules.

Investment management

In the summer of 2022, we expect a Consultation Paper on broadening the distribution of Long Term Asset Funds (“LTAF”) to retail investors. Also due is a Policy Statement on the use of side-pockets for UCITS funds with sanctioned or suspended Russian assets.

Two important initiatives within the investment management space remain under development but without committed timetables: first, the review of the liquidity mis-match in open-ended property funds dealt on a daily basis – with the responses to the FCA’s Feedback Paper FS21/8, published in May 2021, still being considered.

Second, the wider review of the UK Funds Regime continues to move forward following the UK Government’s Response to its Call for Evidence, published in February 2022. The Treasury and FCA are taking forward a number of related initiatives, including the establishment of an unauthorised contractual scheme for professional investors, enabling authorised funds to distribute capital, plus other changes to the tax treatment of certain funds.

Also closely watched will be the FCA’s Policy Statement on its review of the Appointed Representatives Regime, due out in Q3 2022. This promises to introduce onerous new requirements for the approval (by the FCA) and oversight (by Principals’) of appointed representatives.

Wholesale markets

Similarly, the Wholesale Markets Review that has been in play since Brexit continues to see various initiatives in play. In Discussion Paper DP22/2, published at the end of May, we saw the FCA’s feedback on the Primary Markets Effectiveness Review, including proposals relating to Special Purpose Acquisition Companies (“SPAC”).

Before the end of 2022, the Securitisation Regulation (in its UK form) mandates the Treasury to review its effectiveness.

Further Consultations are expected from the FCA this summer in relation to equity markets transparency, and also proposed changes to the trading venue perimeters.

Finally, in Q4 2022 we expect to see a Policy Statement on the UK EMIR REFIT.

We will continue to advise clients of the important relevant regulatory messages emerging from the bi-annual publication of the Grid.

How we help

Digesting these complex regulatory developments is not easy. If you would like more clarity on how this impacts your firm, our compliance and ESG advisory specialists are on hand to assist. Please complete this form or call +44 (0) 20 7042 0500 to connect with us.