The uncomfortable answer is: nobody’s entirely sure. What we do know is that Brexit will be a huge regulatory challenge.
Brexit is coming – probably, at some point in the next couple of years, we think. Depending on which way you voted, that either makes you extremely happy or incredibly angry. However, a year and a half on from the vote, the only certainty is uncertainty, and that creates an enormous regulatory headache for financial services.
So where are we at the moment?
As we approach the end of 2017, Britain has struggled through the first phase of negotiations and can dust itself down in preparation for the next. However, negotiations on trade will not now be happening until March meaning we won’t know what shape Brexit will take, what access financial services will have to the EU or what regulatory framework it will be following.
In other words, we don’t know much more than we did last year.
Regulating Finance After Brexit
One thing that is certain according to a new report, though, is that Brexit will require another enormous shakeup of financial services regulation.
The study from International Regulatory Strategy Group (IRSG) and Linklaters suggests the transfer of rule-making responsibilities will pose a host of important questions.
Currently, responsibility for rule-making rests jointly with the EU and the member states. Post-Brexit it will move to the Bank of England and FCA.
This, said the report authors will pose issues such as political oversight, scrutiny and engagement with the industry. It will, the report says, create “a new balance of power which poses important questions around political scrutiny and engagement with industry and customer groups.”
The report raises four areas for immediate review:
- The powers and resources of the regulators in the UK
- Ensuring UK regulation leads global standards
- Interrogating the scrutiny of the regulators: For example, how they interact with parliament, the public and other stakeholders?
- Assessing areas of consolidation and simplification.
Mark Holban, Chair of ISRG says:
“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.”
At the very least new regulations will introduce additional layers of complexity which can create difficulties for financial services and unintended consequences. This is all the more important as it comes at a time of enormous regulatory upheaval as rule makers get to grips with the implications of a truly global high tech digital economy.
The Need to Be Agile
The chances are regulators will have to take an evolutionary approach to the challenge, evolving their approach to suit the changing landscape.
Compliance officers will have to be agile. They will need to stay informed of the latest developments, and enforcement news, to improve their own practices.
By looking at emerging trends, compliance teams can inform their own strategies, reduce risk and cost. Technology will play a crucial role. Platforms such as Enforcd will be important in delivering the information and analytics compliance managers need, but it will have to be implemented correctly.
Times, then, are about to get as interesting as they ever have been for compliance officers, and not all of them will be grateful. However, in such an uncertain environment information will be key. Those who are better informed will be best placed to reap the dividends.