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Dec 20, 2022

What IROs need to know about one of the biggest overhauls of UK financial regulation in 30 years

Capital access, digital currency, banking reforms and green finance strategy takeaways from the Edinburgh Reforms

On December 9, UK finance minister Jeremy Hunt outlined a set of reforms aimed at driving growth and competitiveness in the financial services sector.

Collectively dubbed the Edinburgh Reforms following their announcement at an industry roundtable held in the Scottish city, the series of more than 30 regulatory reforms build upon the Financial Services and Markets Bill currently passing through the UK parliament to repeal and replace a number of EU laws governing financial services.

‘These are an ambitious and comprehensive set of proposed reforms,’ comments Richard O’Connor, global head of IR at HSBC Holdings.

London skyscrapers

In what is arguably a positive move for advisers and perhaps the proposal that will have the biggest impact on IROs, the portfolio 10 percent drop rule, first introduced in 2018 within Mifid II, is to be abandoned from next year. The existing rule means clients must be informed by the end of the working day if their portfolios have dropped 10 percent or more in a certain period.

Commenting on the proposal, O’Connor says: ‘Clearly the review of Mifid II will have medium-term impacts we will need to be on top of and be proactive on in terms of any changes. Sector impacts will differ, as will impacts dependent on the size and complexity of the company in the banking sector. Individual impacts will vary by corporate issuer and IR teams will need to adapt and be proactive.’

Improving access to capital

Also announced by the UK finance minister are plans to work with regulators and companies to trial a new class of intermittently operating wholesale market venue to improve companies’ access to capital before public listings.

Addressing the issue of innovation and technology in digital finance, the reforms include a commitment to the publication of a consultation on proposals to establish a UK Central Bank digital currency that, according to the UK government, ‘could one day see Brits using a digital pound.’ The plans will also see the Investment Management Exemption extended to crypto assets.

Other measures within in the Edinburgh Reforms include plans to address the divide between smaller banks and their investment banking activities. This ring-fence was developed in 2015 after the 2008 financial crisis aimed at reducing risks and promoting the stability of banks.

IROs should also be aware of the reforms’ commitment to the publication of a new green finance strategy in early 2023, as well as a consultation on bringing ESG ratings providers into the City regulator’s jurisdiction, with the aim of boosting transparency and consistency within the products they offer.

In making his announcement, Hunt said: ‘The Edinburgh Reforms seize on our Brexit freedoms to deliver an agile and home-grown regulatory regime that works in the interest of British people and our businesses. And we will go further, delivering reform of burdensome EU laws that choke off growth in other industries such as digital technology and life sciences.’