Now the fight is over a post-Brexit UK is looking at how it rises up to the challenge of having taken back control. We’ve taken a look at the recent report from the Taskforce on Innovation, Growth and Regulatory Reform (TIGRR) to find out what this means for financial services, and distilled the 130 page report here for you.
The TIGRR report is a report written for the UK Government which intends to influence the future of regulation in a post-Brexit UK. Its contents are simply Government recommendations as opposed to anything definitive. It provides a helpful perspective on the future direction of regulation in the UK and the changes we could see as a result of no longer having to take rules from the European Union.
What is noteworthy about these recommendations is the fact that you may have seen or heard of some already. That they are being repeated in this report shows they are gathering momentum and make them far more likely to happen.
There is a general deregulatory theme for wholesale and a more principles, less black and white approach. Also a theme in the recommendations of reducing reliance on disclosures in favour of better up front explanations and better reflection of roles in different sectors instead of blanket one size fits all approaches.
We’ll take you through the main recommendations that we think of interest to you.
1. Disclosure and Transparency
The report makes a series of recommendations about disclosure which it wants to become more proportionate for business and incentivise bespoke information provision.
Remove the costs and charges reports to professional investors and eligible counterparties.
Make the best execution report suspension permanent
Remove the MAR investment recommendation disclosure requirement
Confine PRIIPS KID obligations to genuinely complex packaged products
Rework the current DGSD disclosure document
FCA says they have contributed to a Treasury consultation that will be coming out over the summer of 2021 on MiFID and these topics may well feature.
2. Central Counterparty Clearing House Margins
The report is concerned about the existing requirement that CCPs run a model for the calculation of margin, with regulatory validation of significant changes to that model. It is also concerned current margin obligations are too prescriptive.
The reasons states that following these models could increase systemic market impact, citing the Texas grid outage as an example that could have put Market Participants into default had they followed these models without any human intervention.
It therefore recommends a discretionary and judgement based approaching to calculating CCP margins.
A primary adjustment to the GDPR includes the removal of the cookie consent banner on websites. The report sees these banners as serving limited purpose and generally being ignored by consumers.
In their place the report recommends the creation of a “data trust” or “data fiduciary” as private and third sector organisations that would take decisions on behalf of consumers about use of their data such as that harvested from website traffic.
It is also strongly against the Article 22 automated decision making provisions of GDPR which it considers hampers development of artificial intelligence. Instead it recommends placing greater reliance on the legitimate, or public, interest test.
4. MiFID2 Position Limits
The report argues that position limits were inserted to MiFID2 to avoid squeezes and holding positions that exceed physical commodities available for delivery.
It considers that exchanges are well placed to mitigate risks of these risks in more granular and tailored position monitoring. It also considers that the current position limits stifle new product development, particularly in new and emerging markets and for more illiquid instruments.
On this basis the report recommends that the FCA excludes contracts related to liquidity provision and risk mitigation. It also recommends FCA grants an exemption to the requirement to aggregate group positions where there is no common management of those group entities.
Any suggestion that less anti money laundering checks may come as a surprise in the present climate yet the report does just that. It recommends that the following firms are excluded from the definition of financial institution under the AML regulations:
Account Information Services (AIS) and Payment Institution Services (PIS) as they never come into possession of customers funds.
Account Information Service Providers (AISPs) as their AML efforts duplicate banks due diligence.
Payment Initiation Service Providers because they have no control over executing transactions or moving money and so duplicate banks efforts.
Another sensible recommendation is that the CRR2 is modified to enable a graduated scheme to exist for challenger banks.
At present MREL and IRB create effects that favour the larger banks. This does not work for the UK market that is dominated by a small number of larger banks.
Maintaining the UK position as one of the lead markets for FinTech by operating a regulatory environment that acts as an enabler encouraging growth and competition.
If you are affected by any of the recommendations raised by this report please do get in touch with us, we’re interested to hear the impacts on you and can help you plan for the future regulatory regime.