HM Treasury (“HMT”) has published a consultation launching the second phase of the Future Regulatory Framework (FRF) Review (the “Review”). The purpose of the Review, which began in 2019, is to explore how the UK’s regulatory framework for financial services needs to change in order to be fit for the future, particularly in light of the UK’s exit from the EU. The aim is to achieve an agile and coherent approach to financial services regulation in the UK, with appropriate democratic policy input to support “a stable, innovative and world leading FS sector”.

Scope of the Review

Following Phase I of the Review, which focused on the specific issue of coordination between the UK’s regulatory authorities, Phase II now examines the broader regulatory framework for regulation of financial services in the UK in two stages.

The aim of this first consultation in Phase II is to generate a detailed and wide-ranging debate to help develop the overall blueprint for the UK’s future framework, leading to a full package of proposals for consultation in 2021 and consideration as to how these will be delivered.


Central to the proposals in the consultation is an adaptation of the regulatory framework under the Financial Services and Markets Act 2000 (“FSMA”). Rather than introduce a new framework from scratch, HMT views the FSMA model of regulation, which delegates the setting of detailed regulatory standards to expert, operationally independent regulators within an overall policy framework and approach set by Government and Parliament, as continuing to be the most appropriate.

The consultation notes, however, that the FSMA model is no longer working as intended. Its operation within the EU led to a blurring of responsibilities, with HMT taking on responsibility for key areas of regulatory policy which would have traditionally sat with the UK regulators.

Following the onshoring of EU legislation by HMT, the government now believes there would be significant disadvantages to retaining the onshored regime over the long term including:

  • inflexibility of having rules embedded in legislation;
  • regulatory requirements being maintained separately from the expertise gained through the supervision of firms;
  • disproportionate demands on Parliamentary time for the ongoing maintenance of detailed financial services regulatory requirements; and
  • having a patchwork of domestic and retained EU legislation, leading to a fragmented rulebook that is challenging for firms and consumers to navigate.

Key proposals

The proposals for a post-EU regulatory framework will seek to address the following:

  • a clear division of responsibility between Parliament and Government, with legislation setting the regulatory framework on the one hand, and the regulators being responsible for setting the requirements which should apply to firms and markets on the other hand;
  • Government and Parliament being able to set the policy approach and purpose for specific financial services activities, with the regulators to then develop policy and design the regulatory requirements for that specific activity;
  • updating current FSMA transparency requirements so that regulators are required to explain how their proposals meet the statutory purpose set for a particular regime and demonstrate that they have considered the activity-specific regulatory principles; and
  • clear and effective ways for regulators to be held accountable to elected politicians and key stakeholders, including the general public.

The Government recognises that the delegation of regulatory responsibility to dedicated, independent financial services regulators has been a core feature of the UK’s regulatory framework for many years and has served the UK well. As such, the Government proposes that it remains a key feature of the UK’s regulatory framework.

Firms are encouraged to engage with the consultation and provide feedback by 19 January 2021.

Clive Cunningham
Clive Cunningham
+44 20 7466 2278
Mark Staley
Mark Staley
Senior Associate
+44 20 7466 7621
Patricia Horton
Patricia Horton
Professional Support Lawyer
+44 20 7466 2789
Katie McGrory
Katie McGrory
+44 20 7466 2669