Financial Services Act 2021 (Prudential Regulation of Credit Institutions and Investment Firms) (Consequential Amendments and Miscellaneous Provisions) Regulations 2022 — House of Lords, 2022-07-05
Topic: Domestic Commerce
Joanna Penn (Conservative, Centre-right): My Lords, these regulations tidy up certain aspects of the statute book following the implementation of the remaining Basel III standards and the investment firms prudential regime During his Mansion House speech last year, the Chancellor set out an ambitious vision for the financial services sector. The vision is one of an open, green and technologically advanced financial services sector that is globally competitive and acts in the interests of communities and citizens, creating jobs, supporting businesses and powering growth across the UK. At the heart of this are the changes that the Government have proposed as part of the future regulatory framework review, which involves delegating responsibility to regulators subject to enhanced accountability. As noble Lords may recall, the Financial Services Act 2021 introduced a similar model in the area of prudential regulation specifically, to enable the Prudential Regulation Authority to update the UK’s capital requirements regime, to implement the remaining Basel accords and to enable the Financial Conduct Authority to implement the investment firms prudential regime. Both regimes devolved the detailed firm requirements to the relevant financial services regulator In September and December last year, noble Lords approved two SIs made under the Financial Services Act 2021 to implement these regimes. Cumulatively, these two SIs revoked relevant sections of the capital requirements regulation and introduced consequential amendments to make the regimes function effectively. This instrument makes further consequential changes to provide a complete, functioning legal regime for firms. These can be grouped into four categories First, many of the measures in this instrument make changes to ensure that the statute book is coherent after the implementation of Basel III and the IFPR. For example, the instrument inserts references into legislation to PRA rules which implement the Basel standards, and FCA rules which implement the IFPR Secondly, as noble Lords may recall, under previous legislation already considered by this House, IFPR investment firms were removed from the scope of the UK resolution regime. This step was taken to ensure that the burden on firms is proportionate to the financial stability risks they pose. The instrument that we are considering today ensures that the statute book is coherent following this removal. For example, this instrument revokes the Banking Act 2009 (Exclusion of Investment Firms of a Specified Description) Order 2014, which has been rendered redundant, given that all IFPR investment firms have now been excluded from the resolution regime Thirdly, this instrument clarifies transitional arrangements for certain securitisations, following the implementation of the IFPR. Under the UK securitisation regulations, firms issuing securitisations are required to retain 5% of the risk. In some scenarios, certain firms can retain this 5% on a consolidated basis, sharing it with other entities in their group. Some IFPR firms could do this previously but, following the implementation of the regime, IFPR firms must now retain the 5% themselves. They cannot share it with other entities in their group. This reflects how the IFPR works A previous instrument considered by this House last year created a one-year transitional period for this change to take effect. The instrument that we are debating today clarifies the steps that firms must take before the end of the one-year transitional period. We do not expect many firms, if any, to be affected by this. However, we want to ensure that requirements are clear and workable, in case there are any firms affected Finally, the instrument further addresses a small number of deficiencies arising from the withdrawal of the UK from the EU which have been identified during the development of the above amendments; for example, replacing references to the EU with references to the UK. I hope that noble Lords have found my explanation helpful. I have kept it relatively brief given that we have had similar SIs before, because the regime itself has already gone live, and the majority of this SI is simply fixing cross-references. I beg to move.