Targeted changes to the UK’s regulatory regime for overseas firms would boost the UK’s attractiveness to international firms, without reducing regulatory standards or introducing risk , according to a new report from the International Regulatory Strategy Group (IRSG) in partnership with Hogan Lovells.
Targeted changes to the UK’s regulatory regime for overseas firms would boost the UK’s attractiveness to international firms, without reducing regulatory standards or introducing risk, according to a new report from the International Regulatory Strategy Group (IRSG) in partnership with Hogan Lovells.
The report, ‘The UK regime for overseas firms’, found that the UK’s existing framework for overseas firms was generally considered internationally competitive, being based on the principle of openness to cross-border trade. However, the IRSG did identify areas for improvement as many rules remain overly complex or poorly signposted.
The IRSG, which is co-sponsored by City of London Corporation and TheCityUK, also found instances of conflicts between UK rules, and recently onshored EU regulations. For example, currently firms from countries covered by an existing UK equivalence determination, denoting they have similar rules to the UK, are in a worse position than those operating under the UK’s general Overseas Person Exclusion (OPE).
The IRSG urges UK government and regulators to reform the equivalence framework inherited from the EU to make sure it takes into account the UK’s existing competitive overseas regime. They should also take the opportunity to make the UK’s approach to granting market access clearer and more coherent.
Dr Kay Swinburne, Chair of the IRSG, said,
The UK’s regulatory regime is one of the best regarded in the world, as it has consistently developed to respond to innovation and has been framed by the highest global standards. One of the key features of the UK’s regulatory regime is its openness to international business. It is vital for UK global competitiveness that this continues. We believe that with minor targeted improvements, the access regimes could help to make the UK even more attractive for international firms.”
Rachel Kent, Head of Financial Services Regulation, Hogan Lovells, said,
There is a real opportunity for the UK to consolidate and streamline legislation which would improve international market access and competitiveness. The UK’s Overseas Person Exclusion is widely perceived as a major contributing factor to the success of the UK financial services sector and with small changes it could be even better.”
Key recommendations from the IRSG include:
- The UK regulatory perimeter is not as clear as it could be. New guidance should be issued in order to allow overseas firms to understand what services they can provide to UK users of financial services, either with or without authorisation in the UK.
- The overseas persons exclusion (OPE) is a valuable element of the UK’s regulatory perimeter. There is some scope to rationalise it and make it clearer, but the UK should not be considering any changes that would restrict the OPE at least in relation to wholesale business.
- The regime for overseas firms to establish regulated branches in the UK should be updated to include, in particular:
- a clearer framework, particularly with regard to the scope of ‘deference’ to the home supervisor of the overseas firms);
- establishing better processes through which applications will be considered;
- amending the factors for authorisation to introduce a requirement that the UK regulators ‘have regard to’ the attractiveness of the UK as an inward investment destination, innovation and applicable international standards; and
- simplifying and improving the navigability of the regulatory requirements applicable to UK branches.
For cross-border access for overseas firms not covered by the OPE regime, the UK should continue to have an equivalence-style regime, but based on the concept of “deference” rather than an EU-style detailed analysis of equivalence. The UK should also consider whether this would be a suitable basis for allowing wider access in relation to retail financial services.