The architecture for regulating finance after Brexit” report says that a rebalancing is needed that will give regulators more ability to change the rules in a manner that will withstand the scrutiny of global standards.
Rules relating to financial services are currently spread between regulators, the Treasury and parliament and the set-up will ‘remain complex’ after Brexit.
“A consolidation exercise should be considered to improve the accessibility of the law and lower compliance costs, by making it easier to locate specific regulatory requirements within the legal framework,” the report says.
Linklaters’ global head of financial regulation Peter Bevan said: “it is a barrier to the market place if you cannot work out what the law is and how it applies to your business”.
The need to consult ‘high priests’ in order to understand regulation could hamper trade negotiations, he said.
The report also urges that the UK Treasury and financial regulators work together with the Law Commission to hammer out legal issues such as the appropriate review and consolidation of financial services legislation and related common law.
“This will help address the need for additional scrutiny of the regulator’s legislative functions,” the report said.
Lord Bruce of Bennachie, of the House of Lords’ EU Financial Affairs sub-committee, said at the launch that the issue is that financial regulation has, for the past forty years, been done through the EU and European institutions.
“The UK parliament does not have that capacity, frankly, to tackle financial services in detail,” he said.
“The dilemma is if we want to have proper democratic accountability and openness, we have to restructure the way parliament does it.
“We probably have to set up special committees and give them adequate resources.”
He said that if regulators are given more responsibility, they have to be transparent and there has to be a capacity for the regulators to be held to account by parliament.
“It does mean real effective capacity to examine and cross-examine,” he said.
Dr Kay Swinburne said that if regulators diverge knowingly from global standards, that puts the UK politically at a big disadvantage.
“The simple line that says that divergence is a public policy issue is absolutely crucial,” said Lord Bruce, though he said it remains to be seen what the Withdrawal Agreement is before this can be applied.
Miles Celic, chief of industry lobby group TheCityUK, said the current negotiations and the changing political, economic and cultural landscape, have led to uncertainty for the industry which must now consider “third country arrangements and market access transitionals and access to talent”.
Linklaters partner Lucy Ferguson said the UK will gain the ability to independently change and develop its financial regulation.
“We also gain back from the EU as well as the broader competence, specific competencies in specific areas where currently only the EU regulate,” she said.
The Withdrawal Bill will bring back to the UK functions which are currently exercised by EU supervisory authorities, she said.
The system need accountability on the one hand and flexibility on the other, and transparency at all times, said Dr Kay Swinburne at the launch of the Linklaters document.
Julian Adams of Prudential said if the objectives are too narrowly drawn, without public policy overlooking that, is serial concern which would be unhelpful, though he said he wasn’t calling for light-touch regulation.
Depending on the shape of the Agreement, “we would like to have flexibility to amend the parts of the EU regulation that doesn’t apply appropriately in the UK,” Adams said.