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THE UK-EU RELATIONSHIP IN FINANCIAL SERVICES
concerned that such meetings are not taking place with the structure
or regularity needed for close UK-EU cooperation. Notwithstanding
the importance of establishing a more comprehensive structure
for regulatory cooperation with the EU, we therefore recommend
that these meetings take place at least once a year and are used as a
forum for discussing regulatory cooperation and raising any issues of
concern.
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THE UK-EU RELATIONSHIP IN FINANCIAL SERVICES
ChAPTER 4: REGULATORY REFORM AND DIVERGENCE
Onshoring of EU legislation
135. Until the end of the Withdrawal Agreement transition period on 31 December
2020, the rules governing the UK financial services sector were derived from
EU legislation.
136. At the end of the transition period, in order to prevent systemic financial
instability through regulatory uncertainty and the need for rapid and
significant
regulatory change, the UK converted EU legislation into UK
domestic law through a process commonly termed ‘onshoring’.
174
137. As a result of the onshoring process, most of the body of UK financial
services regulations remain closely aligned with EU law, at least for now.
Edwin Schooling Latter of the FCA said that there had been “marginal
bits of divergence” so far but that “99.5%” of the UK’s framework remains
aligned with the EU.
175
138. This approach to regulation was
welcomed by witnesses, who noted that
onshoring successfully limited regulatory uncertainty at the point of the
UK’s EU exit. Peter Bevan of Linklaters, for example, noted that there “was
overwhelming welcome [in the City] for the idea that the body of EU law
should be retained as is at the point of departure.”
176
Caroline Dawson of
Clifford Chance similarly noted that “consistency initially was key. No one
was keen to see the general upheaval, and on top of that … a wholesale
implementation project”.
177
139. However, whilst the onshoring of EU legislation was
viewed as successfully
preventing significant and rapid regulatory changes at the point of the UK’s
departure, concerns remain that the newly onshored EU regulation, termed
the inherited
acquis
, is not the most appropriate long-term regulatory regime
for the UK financial services sector outside the EU.
140. Witnesses noted that, because of differences in the legislative systems of
the UK and the EU, particularly given the latter’s
need to operate across
(formerly) 28 Member States, the regulatory framework currently in operation
in the UK is not clearly and appropriately separated between primary and
secondary legislation. For example, Caroline Dawson described the current
rulebook as “all over the place”:
“We have regulatory rules, primary legislation, secondary legislation,
secondary legislation inherited from the EU and
secondary legislation
with the force of primary legislation, so the ability for the regulators to
waive parts of their rulebook that they have traditionally been able to
waive is limited”.
178
174 The Government included powers to bring forward Statutory Instruments to this end in the
EU
(Withdrawal) Act 2018
.
175
Q 56
176
Q 41
177
Ibid.
178
Ibid.
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THE UK-EU RELATIONSHIP IN FINANCIAL SERVICES
141. The regulators themselves acknowledged the imperfections of the onshoring
process. Sam Woods of the PRA described it as follows:
“What we did in the onshoring was a necessary
way to do it at speed,
and it has created a viable framework that we are both operating today,
but it is extremely complex and unwieldly because of the way in which
the rules spread across these different parts of our rulebooks and
different layers of law. That makes it difficult to update and very hard
to navigate”.
179
For the FCA, Edwin Schooling Latter similarly argued that the “overarching
framework works. It functions … but it is clunky
because bits of it were
designed for a multilateral world and a whole EU market, whereas we have a
single country and a differently shaped market”.
180
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