On May 9, the UK government published its response to the House of Lords European Union Committee’s report, entitled “Brexit: The Future of Financial Regulation and Supervision,” which was published on January 27. The Committee’s report includes recommendations under six categories, including:

1. Incorporating the EU acquis (being the accumulated legislation and court decisions) in financial services; and

2. Regulatory innovation, financial technology (FinTech) and the future.

Incorporating the EU Acquis

The Committee’s report identifies the resolution of so-called “inoperables.” These include references in EU legislation to EU bodies which will no longer have jurisdiction after the United Kingdom’s withdrawal from the European Union (more commonly referred to as Brexit), and the treatment of current EU third-country agreements and decisions (for example, central counterparty equivalence decisions under the European Market Infrastructure Regulation).

The response shows a willingness to facilitate, if required, European Economic Area firms fulfilling their obligations to UK consumers in a variety of post-Brexit scenarios. In response to concerns of a decrease in democratic scrutiny, the government states that current EU “Level 1” legislation and “Level 2” delegated acts will become the responsibility of UK ministers and parliament, while “Level 2” technical standards will be handed to UK regulators (such as, the Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority) mirroring the EU status quo.

Regulatory Innovation, FinTech and the Future

In its report, the Committee recommended that the implementation of the latest post-financial-crisis banking reforms be proportionate so as not to unduly burden smaller firms and, similarly, Brexit negotiations should preserve the United Kingdom’s flexibility to innovate with respect to FinTech regulation. The government’s response confirms that it will seek to encourage proportionate legislation in these areas and maintain a flexible approach regarding FinTech regulation.

Regarding the potential loss of funds from the European Investment Bank and European Investment Fund, the government indicates that it is looking at preserving this aspect of the UK-EU relationship. The government also highlights an increase in the British Business Bank’s limits on investment in venture capital funds, the bringing forward of £400 million of additional investment and a 10-year action plan to unlock over £20 billion to finance growth in innovative firms, as measures to ensure investment finance in the United Kingdom continues after Brexit.

The government’s response to the Committee is available here.