The House of Lords Select Committee on the EU has published the uncorrected oral evidence of its heading on financial services supervision after Brexit. The hearing looked at the differences between international standards and EU standards, noting that international standards focus on prudential issues, leaving conduct and investor protection measures more to national regulators. But one expert noted the risk that the “America First” Trump presidency could effectively make international standards driven by others less important, but also that a UK/US alliance could prove very powerful. They moved on to discuss issues related to the Eurozone and the credibility of banking union. The experts agreed any change in regulation is likely to be incremental, rather than there being a deluge of new requirements. They then raised some possibilities for areas of regulation in which the UK could logically follow the EU, and vice versa. The experts thought that “if there’s a will, there’s a way” for UK and EU regulators to continue to work closely together and co-operate, and for the UK to liaise closely with the ESAs. They saw grounds for hope.
The Lords then asked to discuss the Withdrawal Bill. One key issue the experts noted is the current lack of clarity on the powers the regulators will have to finesse and amend secondary legislation. However, it was agreed that the Bill, and negotiations, are at a very early stage, that everything will not be right immediately but that there will be time to get it right. The experts acknowledged that this could make financial institutions feel uneasy and that the current powers in the Bill for different agencies to make delegated legislation are likely to be amongst the most controversial clauses.
The experts also identified the difference between two types of “transition” – and that the UK thinks that not only the 2 year withdrawal process but also extra time for transition is required, whereas the EU considers the 2 year process to provide the orderly transition. As a result, there will be stresses, particularly around contracts – both those already in place and those agreed on Brexit. It was agreed that it is unsatisfactory to rely on all other Member States agreeing extensions to the 2 year period, but this is what may end up being the case.
Finally, the discussion moved onto the UK’s competitive advantage around fintech. It was noted the EU did not pay a key role in these developments as they tend to take place at national level, and the UK is a leader.