What will regulation in the UK look like after Brexit?
On 16 May the Bank of England published a speech by Sam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer, Prudential Regulation Authority, which he presented to the UBS 20th Annual Financial Institutions Conference in Lausanne.
Woods spoke about the ‘style’ of regulation the UK should aim for and explored the differences between EU and UK approaches to implementing regulatory rules.
He sets out the six principles of an effective framework of regulation and argued that using an existing British approach was the best way to deliver these principles in the future.
In many ways South Africa’s regulations in the sector follow in the UK’s footsteps, making the changes of their landscape an interesting read on this side of the world.
Woods said some feared Brexit might cause public alarm at the size of the financial sector relative to the size of the economy and ever-tougher financial regulation would be required in order to assuage their sense of unease. EU officials, on the other hand, expressed concern that having escaped the “shackles” of EU regulation, the UK would embark on a course of weakening financial regulation in a way that makes the financial system less resilient.
“This, needless to say, would be anathema to the Prudential Regulation Authority and to all of us who have spent the last decade repairing the financial system,” he said.
Woods said in a post-Brexit UK it would make sense to keep the system “calibrated roughly where it is now”. His impression was that at the most senior levels most of the people running banks and insurance companies in the UK would agree with that position, which had the support of Government and Parliament. “We need to keep pace with new developments and continually patch any weak parts of the regulatory system, but overall following 10 years of wrenching reform we should let the new architecture do its job,” Woods said.
Looking at the four main legislative styles adopted by Parliament in the last couple of decades – those for delivering FSMA, SMCR (Senior Managers and Certification Regime), ring-fencing and the EU model – the one that fits the principles best is the approach used for SMCR.
It is natural to ask whether such an approach would make sense for the UK once outside the EU, a question that Government and Parliament will need to take into account when discussing EU market access, which could in some scenarios lead to greater alignment.
Woods said the UK could adopt a hybrid approach, which doesn’t replicate either of the pre-existing EU or British approaches and opens a host of possibilities.
To read his full speech, click here.