The UK in 2017: Not Business as Usual

June 8th, 2017

It’s not business as usual for the United Kingdom this year. Major political disruption and uncertainty stemming from Brexit are likely to spill onto regulatory agendas.

In March, the British Prime Minister Theresa May triggered Article 50 to begin negotiations with the EU. Despite the UK’s initial hopes to maintain most of the business privileges associated with EU-membership, both parties have appeared to harden positions, each ruling out ongoing membership of the Single Market. UK companies are therefore unlikely to maintain important passporting rights.

Many financial institutions based in the UK depend on these rights to extend business and resources throughout the EU. Several EU cities, including Paris, Dublin, Frankfurt and Amsterdam, are competing for companies looking to relocate.

UK regulators have expressed concern over the course of Brexit negotiations. Financial Conduct Authority Chief Executive Andrew Bailey has cautioned against a ‘hard Brexit’ approach, citing ongoing regulatory initiatives in the EU and UK. Both he and Mark Carney, Governor of the Bank of England, have advocated for a more collaborative approach to Brexit, favoring some regulatory harmonization and thoughtful transition agreements.

UK regulators are also working on implementing large-scale regulatory initiatives this year. The regulators remain focused on fostering a positive culture in financial services while guarding against misconduct. Some agencies also plan to shift enforcement approaches this year.

The UK’s 2017 Regulatory Agenda At-A-Glance:

Bank of England (BOE)
With formal Brexit negotiations underway, the BOE will play a key role in supervising the UK’s transition out of the EU.

  • Brexit Management – The BOE will be cautious about the financial risks posed by political changes. Although the central bank has revised growth forecasts upward, there is still concern about the economy’s resilience during Brexit, rising interest rates and a retreat from free trade.
  • Stress Testing – The BOE will introduce the biennial exploratory scenario (BES). The revised testing is expected to incorporate the potential impacts of Brexit and other political changes.

Financial Conduct Authority
In 2017, the agency will implement components of large-scale regulatory initiatives, including the Financial Advice Market Review (FAMR) and the Senior Managers and Certification Regime (SMCR). These initiatives share an underlying focus on conduct.

  • FAMR – Roll out will continue in 2017. The FCA will consult on streamlined advice for consumer needs. The agency will also develop a fact sheet for employers and define standard information required as part of the fact-finding process.
  • PPI Misselling Claims – The FCA has extended the final deadline for payment protection insurance (PPI) redress through June 2019. Continued PPI claims and investigations are expected this year.
  • SMCR – The SMCR’s regulatory reference rules went into effect on March 7, 2017. The rules are intended to improve hiring decisions and will align with Conduct Rules.

Prudential Regulatory Authority
The PRA will begin the massive undertaking of implementing ring-fencing reforms this year.

  • EC Capital Rules – Deputy Governor for Prudential Regulation and Chief Executive Officer of the PRA, Sam Woods, has been critical of the EC’s plans to revise capital rules. The proposed rules would force non-EU banks with a large European presence to set up holding companies with enough capital to absorb losses. The requirements could have an immediate impact on UK banks in a post-Brexit environment.
  • Mortgage Rules – New rules to regulate buy-to-let mortgages became effective on January 1, 2017. The rules include stricter underwriting and borrower disclosure requirements. These rules will likely be a supervisory priority in 2017.
  • Ring-Fencing – The PRA will monitor the implementation of ring-fencing requirements, which go into full effect in 2019. The provisions require lenders to segregate retail banking units inside a subsidiary to protect against failure. Financial institutions will begin restructuring this year.

Serious Fraud Office
In 2017, the agency will likely undergo changes in its approaches to corporate and individual prosecutions.

  • Corporate Criminal Liability – In January 2017, the SFO solicited feedback on lowering the liability threshold to bring criminal charges against corporations. These changes would bring the SFO’s approach more in line with the US.
  • Expanded Use of DPAs – Last year, the SFO completed the first two deferred prosecution agreements (DPAs). The agency is looking to expand the use of this strategy in 2017.

UK regulators have already refined their enforcement and supervisory priorities, building off their initial plans going into the year. Culture and conduct remain major regulatory themes and appear to be gaining momentum.

Andrew Bailey recently said the FCA continues to expect firms to identify and implement the drivers of good behavior.  In April, Mark Carney, who also serves as Chair of the Financial Stability Board, remarked on the costs of misconduct in the financial sector. He said these amounted globally to $5 trillion in lost lending. He indicated that the UK plans to move away from “excessive reliance on punitive fines” in favor of greater emphasis on improved culture.

Alongside the SFO, the FCA appears to be pivoting to individual accountability. Mark Steward, FCA Director of Enforcement and Market Oversight, indicated his agency would expand the scope of individual liability for corporate misconduct under the Senior Managers Regime. However, Steward said that the SMR did “not mean there [would] be an end to action against firms, including heavy financial penalties.”

Brexit negotiations will continue to evolve at a rapid pace throughout 2017. The EU recently announced its intention to relocate the European Banking Authority out of the UK.  In another recent development, the EU added new language to negotiating guidelines to exclude financial services from a post-Brexit, EU/UK trade deal. These last-minute changes could pose enormous challenges to the UK economy.


Download Clutch’s 2017 Financial Services Regulatory Highlights Report now to learn more. In this insightful and informative report, Clutch Group tracks 2017’s  key global regulatory developments across the financial services industry to identify major rulemakings, legislative and regulatory implementations, supervisory priorities and enforcement trends.