Brexit caused significant disruption to the UK’s financial services landscape with the ending of the passporting regime that allowed UK firms to operate in the EU, and vice versa. With London, and its regulatory framework, now lying outside of the EU, an exodus of UK firms establishing operations in other European cities was inevitable. A growing complexity, a decreasing in harmonisation, and a fragmentation of regulatory regimes has been felt by all over the last five years. Whereas before the rules were the same, today businesses must examine the rules applicable to their activities in both markets and assess where their procedures and /or products need to differ to reflect the differing requirements.
Brexit still looms large over the UK’s relationship with the EU. Regulatory divergence is a key concern. Under the UK-EU Trade and Cooperation Act, the UK agreed to limit subsidies that distort a level playing field and imposed further limitations on labour and environmental standards.
Regulatory uncertainty continues to stem from the ideological divide in British politics. Sunak’s government pursued initiatives that sought to ensure the UK was “an innovative and competitive global financial centre and a driver of growth” such as 2021’s Taskforce on Innovation, Growth and Regulatory Reform, or 2022’s Edinburgh Reforms. That government saw opportunities for a Brexit dividend through divergence; however, Starmer’s government has been more circumspect in pursuing the same, for instance, by the failure to pursue the Data Protection and Digital Information Bill and its loosening of requirements including requirements to conduct impact assessments, the need for statutory data protection officers, third country controllers, or processors to appoint UK representatives.
The UK is working to tailor its rules with a pragmatic approach to legislation – in general, to amend or remove rules that are not working, or no longer serve a purpose, and to boost competitiveness. In terms of financial services, much remains in common, but divergence in evident.
The EU Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation requires sellers to provide standardised key information documentation setting out the characteristics, risks, costs and potential returns of products to enhance consumer protection. Post Brexit, the UK introduced greater flexibility through removing performance scenarios and adjusting summary risk indicators for illiquid PRIIPs. The EU still maintains stricter rules on how information is displayed ensuring consistency rather than flexibility. The FCA amended the definition of Consumer Composite Investments to reflect disproportionality concerns about disclosure requirements.