Brexit will force an overhaul of the UK's regulation of financial services, creating new checks and balances to ensure the system remains "proportionate, coherent and fit for purpose", a new report argues.
Rule-making currently exercised jointly by the European Parliament and member states through the Council of Ministers and responsibilities from the European Supervisory Authorities (ESAs) and other EU institutions will be transferred to the FCA and the Bank of England after Brexit.
This will create "a new balance of power which poses important questions around political scrutiny and engagement with industry and customer groups", argues the report, written by International Regulatory Strategy Group (IRSG) and law firm Linklaters.
They are putting forward four key areas for review, including the powers and resources of UK regulators, ensuring UK regulation is at the forefront of global standards, interrogating the scrutiny and oversight of regulators, how they interact with Parliament, key stakeholders and the public and looking at the legislative and regulatory process, assessing areas for consolidation and simplification.
The IRSG said these areas should be prioritised as the EU Withdrawal Bill passes through parliament.
Mark Hoban, chair of the IRSG, and former Treasury minister, said: “Whatever the outcome of the Brexit negotiations, the UK will continue to need an effective and internationally respected structure for financial regulation. We believe the system we have is already very good, but it will need to be updated to meet the challenges of Brexit.
"It must continue to be independent, but also subject to appropriate checks and balances to keep it accountable and responsive. In order to maintain the UK’s well-respected and globally leading regulatory regime, it must have sufficient flexibility to anticipate and respond to market developments and innovations.”
Lucy Fergusson, partner at Linklaters, added: “Leaving the EU means that the UK’s financial regulators will be operating in a different context and it is essential that the UK’s regulatory architecture remains robust and fit for purpose after Brexit. When the UK withdraws from the EU, it will be able to choose whether to amend, retain or remove EU-derived regulation. Such policy choices will of course be affected by the terms of any future relationship with the EU. In any case, the UK institutions will inherit new powers and responsibilities.”