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A 'period of uncertainty' is predicted as the United Kingdom embarks on 'Edinburgh Reforms.'

The route forward for the United Kingdom in a post-Brexit future was clarified Dec. 9 when Chancellor of the Exchequer Jeremy Hunt laid out his proposals to make the country's financial sector more competitive by eliminating "hundreds of pages of cumbersome" European Union regulations.

Hunt's "Edinburgh Reforms" seek to create a better regulatory structure for the United Kingdom that is more nimble, less expensive, and more responsive to emerging trends, such as leveraging investment in crypto assets.

The plans include a commitment to repeal and replace Solvency II—the rules governing insurers' balance sheets—as well as changing existing consumer credit compliance requirements, overhauling the UK prospectus regime to make it more appealing for firms to list and raise capital, and improving companies' access to capital before they publicly list.

The administration proposes to repeal several of the regulations enacted to protect depositors in the aftermath of the 2008 financial crisis. Following a review next year, the Financial Conduct Authority's (FCA) Senior Managers and Certification Regime—the regulator's cornerstone policy for holding CEOs and senior persons accountable—is also slated for modification.

Oversight will be increased in some areas, such as environmental, social, and governance (ESG) rating providers, while proposals to build a financial market infrastructure sandbox will be announced next year.

The government plans to reform EU laws in industry sectors related to digital technology, life sciences, green industries, and advanced manufacturing by the end of 2023.

Business in the United Kingdom has mainly applauded the government's push to reduce regulations, while many observers are unsure how the measures would operate and what the impact of regulatory divergence with the European Union will be.

Financial services enterprises, according to Hari Bhambra, global head of compliance solutions at IT vendor Apex Group, "will need to stay updated of the staggered consultation we expect to see across 2023 to assess the consequences for diverse businesses and senior management responsibilities."

“Until we see the final regulations, there will of course be a period of uncertainty,” he added.

Flora Hamilton, director of financial services at the Confederation of British Industry, the country's largest business lobbying group, praised the government's openness to work with industry to modify regulation.

"The chancellor's decision to convene industry experts to assess the prospects and risks of divergence shows a prudent approach to the post-Brexit regulatory landscape in financial services," she said in a statement.

Jenny Steven, general counsel of fintech consumer lender Fluro, believes the government's move will allow the UK to "pick and choose" which portions of future EU legislation to accept while allowing it to adapt regulations to meet domestic requirements. Parts of the EU's proposed amendments to the Consumer Credit Directive, which harmonises credit and payment services and protection, for example, she said, might be incorporated into the UK's planned modifications.

According to Daniel Meyer, a financial services lawyer at Freeths, the United Kingdom is striving for difference rather than equivalence with the European Union. The details, much of which have yet to be announced, will be critical, he added, because clients operating in both the United Kingdom and the European Union will have to assess the expense of having to comply with two regulatory regimes.

"Looking at the substance of the Edinburgh Reforms, they are not a 'bonfire of regulation,' thus the main message to top management in regulated firms is that when approaching U.K. regulation, it should be business as usual for the time being," he said. "In many sectors, the strategy is deregulation and reregulation—it is not a return to pre-financial crash regulation (or lack thereof)."

Meyer said the reforms “are not one big shift of regulatory principles but a series of disparate regulatory tweaks that affect different parts of the sector. One of the most regularly recurring words in the Edinburgh Reforms is ‘consultation.’ Firms therefore need to identify which of the reforms are relevant to them and keep abreast of the changes, engaging properly with the consultation processes.”



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