PIMFA welcomes the Edinburgh Reforms but sounds a note of caution

Not long before Christmas 2022, UK Chancellor Jeremy Hunt launched the Edinburgh Reforms, highlighting the “golden opportunity” which Brexit has provided to reshape the rules governing the UK financial sector.

With 30-odd initiatives, the list of areas targeted is extensive, and there are a number of measures that we are particularly pleased to see, including the Government’s move to revoke the PRIIPs regulation, something we have long asked for and we look forward to engaging positively with the Treasury on an alternative framework for retail disclosures.

It is imperative that any disclosure framework is, in future, able to ensure that the end customer is provided with the right information, and in the right way, in order to better understand the sometimes complex decisions they are making.

The framework, as it currently exists, does not do this and in places, seems directly in conflict with the FCA’s broader aims of delivering higher standards of communication under the Consumer Duty. This is a welcome move both for retail consumers and the providers of services to them.

For other proposals, it is not yet possible to say what they might mean in practice, nor what the overall effect might be but, in some cases at least, the first step is for the government and/or the regulators to conduct a review – the Senior Managers and Certification Regime (SMCR) is a case in point, so we will be working closely with our members to understand what elements of this regulation they would like to see improved.

The Policy statement focuses on bringing forward the future regulatory framework review and setting out the plan as to how to repeal EU law and substitute it with more appropriate UK regulations, fit for a post-Brexit Britain.  This works alongside the Financial Services and Markets Bill, which is the legislative process by which these reforms will be achieved. This is set out in a set of different tranches, according to priority, the first of which will take place this year.

The messages for us are two-fold. One of the key drivers to leaving the European Union was that we, from a financial services perspective, would be able to look at aspects of the regulatory landscape which do not work especially well for UK firms and bespoke them in order to ensure that, as one of the driving forces behind the UK economy, our sector can be as efficient and streamlined as possible.  This will ensure that our firms are able to deliver and innovate in the way that they need to and that consumers are able to benefit from that. As a result, we support these reforms for those reasons.

We must, however, take a proportionate view as to how the rulebook is reformed because, whilst it is tempting to ditch much of the existing EU regulation, there are at least some aspects which do work well. We need took at regulatory change as an opportunity but we also need to accept there are elements of the handbook that are there for a reason.

In cases like MiFID II, for example, this has been adopted relatively recently at great financial cost to our members. There will probably be aspects of this that need to remain, so we need to beware of throwing the baby out with the bathwater. Whilst we would encourage an element of streamlining and want to see further efficiencies, we also need to have a clear understanding of what works well already.

An in-depth cost/benefit analysis also needs to take place as regulatory change, even if it is beneficial, always costs money. Our firms have recently adapted to the Senior Managers and Certification Regime and, latterly, are in the process of adopting the FCA’s new Consumer Duty, so the benefits of more change in the midst of a challenging economic environment need to established and particularly the likely costs.

Finally, whilst we accept that it is not the government’s intention, there remains a risk that prudential and conduct standards are relaxed too far in the pursuit of growth, so the use of a scalpel rather than a sledgehammer is to be recommended, whilst future consultations will need to be evidence led, with robust cost benefit analyses, to ensure that this risk is minimised.