Navigating the Edinburgh Reforms in 2023 and beyond
In December 2022, the British government announced new and complex reforms to the regulatory landscape in the UK. Known as the Edinburgh Reforms, the Chancellor laid out a substantial package consisting of both regulatory and tax reforms. These reforms are a culmination of around 30 policy initiatives that have been designed with the goal of supporting the UK in securing a globally competitive, sustainable, open and technologically advanced financial services sector.
The Edinburgh Reforms will be building upon the measures that were introduced by the Financial Services and Markets Bill (FSMB) that was introduced to Parliament on 20 July 2022. A key focus on the reforms will be to make further statements in relation to the regulatory architecture in the UK, with a particular emphasis on the remit and objectives of the regulators. The announcement made by the Chancellor has also brought together both existing and new regulatory initiatives compiled of a collection of policy papers, consultations and responses, and commitments for future work.
Chris Steele, Chief Technology Officer at Alternit One(A1) explores the consequence of this announcement and what it will mean for regulated firms as we progress through 2023 and beyond.
The Edinburgh reforms are set to be introduced via the Financial Services and Markets Bill (FSMB) and will transform the regulatory architecture in the UK on a fundamental level by transferring the power of rule making to the regulators (the FCA and PRA) whilst also working alongside them to develop new goals for ensuring the UK remains competitive on an international stage and secures growth. The Edinburgh Reforms will help the financial services industry transition from EU retained law into a rulebook devised by the regulator in the UK. The government has also indicated an order of priority in which they will tackle the regulatory changes through the course of 2023.
Simultaneously to the Chancellor’s announcement of the Edinburgh reforms, the British government has issued new remit letters to both the PRA and FCA, illustrating key recommendations for how regulators should regard government policy. Key areas of focus include: sustainability, technology and innovation, consumers, pensions and tax, wholesale markets, ring-fencing, and the SM&CR.
It is a clear priority for the UK to establish itself as a world leader in sustainable finance. The government is working towards ensuring the UK’s financial system plays a significant role in the delivery and execution of the UK’s Net Zero target. The sustainable finance sector is rapidly growing and at time of writing, the UK is the world’s premier financial centre for sustainable finance (PWC 2022). The government intends to retain its global leadership and the reforms will help achieve this goal by the following:
The UK will publish an updated Green Finance Strategy in early 2023
Consulting in Q1 2023 on bringing Environmental, Social, and Governance ratings providers into the regulatory perimeter
Another key priority set out in the reforms will be to future-proof regulation to embrace technology and innovation. The government has set out its intention to expand upon the Investment Manager Exemption and setting up a Financial Market Infrastructure Sandbox in 2023.
The FMI sandbox will allow new technology to be trialled and makes provision for the purposes of testing, during a limited timeframe, the effectiveness of carrying on FMI activities in a particular way or exploring the potential ways in which particular pieces of legislation should apply.
The UK’s financial market is plainly set to go through a period of profound change in 2023. First and foremost, firms operating in the financial services sector will need to take time to reflect upon the Edinburgh reforms as they represent one of the most significant packages of regulatory change to the industry seen for some years. Firms will need to consider the pace and volume of regulatory changes and whether they are operationally ready to absorb the potential impacts. It will be even more crucial for firms operating in both the EU and the UK to consider additional operationalchallenges.
At A1, we strive to be experts at understanding how sustainable finance works, and embrace technology innovation. Our specialist team is trained to help firms participating in the financial services sector to embrace any changes quickly and effectively in legislation, whilst also ensuring that they are able to strategize for long term operational planning and challenges. If you would like to talk about how we can support you and your business, please get in touch.