UK Financial Reforms: Bank of England 2.0
A few months ago, we produced a timetable for the implementation of U.S. financial reform under the Dodd-Frank Act.1 One of the main observations was that the legislation did little to consolidate regulation outside of banking. In contrast, the analogous UK reform legislation, the Financial Services Act, made the Bank of England (BoE) the center of UK financial and monetary stability. A 2016 amendment confirmed and strengthened the bank’s role.
However, a significant number of UK financial rules are based on European Union regulations, and currently, as a member of the single market, the UK is subject to them. That membership also has given Britain a voice in EU rule making through representation in both the European Parliament and the Council of Ministers. The UK implements EU rules either by transposing EU directives into British law or by directly enforcing EU regulations. These differences are important, especially as Britain and the EU prepare for the approaching Brexit: To maintain the current regulatory framework, the UK will have to transpose all the EU regulations into its national law. This is even more important now with the EU’s increased usage of regulations as the final stage of the Basel III accord’s implementation approaches. Furthermore, the EU’s regulatory framework itself is a work in progress, with key deadlines in 2018 and 2019. Forsaking EU membership will limit the UK’s ability to influence this process, although it may be obligated to follow the rules that result, because they are mostly driven by international regulatory efforts that include non-EU countries such as the U.S.
Before assessing these challenges, this paper establishes a timeline summarizing the status of financial regulatory reform in the UK. It then identifies some of the forthcoming difficulties, including Brexit and the recent evolution of macroprudential policies among developed countries.