The financial services and markets bill, which will soon be finalised, will scrap all on-shored EU financial services legislation and will require the FCA and Prudential Regulation Authority to copy, amend, or scrap each rule.
The FCA has responded with a review of its asset management regime, contemplating changes to AIFMD and Ucits rules. Expect more conflict between the government and regulators over the direction of policy, particularly considering recent bank failures and market instability.
Where does this leave us?
The first big test of the "new" relationship between the EU and UK will be the overseas funds regime, which is due to begin this year, granting permanent access to EU Ucits funds that pass the UK’s tests.
The Treasury will decide whether Ucits are equivalent in regulatory terms (which seems likely), although the FCA might decide to impose additional conditions.
We are already seeing the FCA impose these additional requirements on overseas managers seeking permission to market their funds in the UK; for instance, demands to comply with UK value assessment and ESG expectations.
A toothless and still-to-be-finalised MoU and an increasing level of regulatory divergence means firms should not expect comprehensive agreements to align rules or grant passporting rights.
Costs will increase for cross-border firms because of the need to comply with two sets of rules, although the UK’s efficiency drive might ease burdens on onshore firms.
Regulatory competition is the new order. This could lead to better rulemaking as each jurisdiction seeks to improve on the other (we already see this in the UK's learning from the EU’s challenges in the Sustainable Finance Disclosure Regulation and the EU looking at the UK’s experience with value assessments and an inducement ban).
But firms will navigate an increasingly complex and costly regulatory environment
Gavin Haran is head of policy for asset management at law firm Macfarlanes
