The idea for this blog was sparked by a conversation with someone who works in a Government Agency in a regulatory capacity. The conversation veered towards Brexit, and what did that mean for the future. A couple of points stood out in a general sense:
- UK influence of EU policy
- Regulatory alignment for trading within the EU
This was then compounded by Sajid Javid saying the UK would diverge from the EU.
I’ve already written about Brexit back in 2017 and a lot of those questions from then are still in play. Currently the government has decided on a piecemeal approach to adopting EU laws, meaning that you cannot assume that all existing laws will apply on exit. This mainly refers to Regulations which will cease after Brexit, and not Directives which are akin to specifications for local law: MiFID for example is implemented via the FCA and PRA’s rulebooks. MiFIR – the reporting component – is not, although plenty of guidance is available.
In 2018 – against the version of the Withdrawal bill 2018 (which has been updated), the European Statutory Instruments Committee was created to sift through a large amount of Statuatory Instruments (SI) (277 at time of writing) to attempt to plug the holes that will be left.
One major issue has been the passage of time, meaning that new laws have been instigated and the SIs need to be amended (multiple times), and this is to keep pace with the current legislative timetable.
At some point this will freeze, meaning that the SI represents the latest view we will have on exit, and at this point, the UK has to manage the regulation. This is important in a context of “equivalence”. Until Brexit, the UK had been often punching above its weight in influencing EU policy, which was largely positive for the industry sectors that had engagement with UK agencies.
After Brexit, trade with the largest partners on our doorstep will not stop, and a key threshold will be the equivalence in regimes. Which means it will become a key risk to track divergence, in a similar fashion to tracking US liability vs EU, institutions will have to add the UK to the mix, which will increase burden, and add a layer of complexity as the UK and EU diverge. It also adds an element of risk to the EU keeping the UK in their “equivalence” framework.
We’ve all come out of an extraordinary set of Regulatory growth since the G20 meeting in 2009, with large changes being implemented in an often organic fashion. Now more than ever the solution has to be a more embedded use of technology since hiring a team of 20 in Indonesia to copy and paste entries to have “yet another” Excel workflow is not tenable.
Good regulatory management can be an opportunity, as the UK sets out on its own, more executive power lies with its own agencies, meaning a feedback loop between the national regulator and then an EU agency (and possibly the Commission, and even the European Parliament) has been removed, implying a more proactive stance by default. It can be a good middle ground to form a healthy market, a meeting place for the world’s trade, however to do that it will need to be able to join the world at all levels, efficiently and with minimum friction.