What do the Edinburgh Reforms mean for ESG and Financial Services?

ESG was on everyone’s lips throughout 2022. Regardless of location and career, sustainability has been high on the agenda for many countries and remains a subject of much discussion.

2022 saw Boards and CEOs getting to grips with both domestic and international obligations. Not only understanding what those requirements are, but also ensuring that they could demonstrate how they fulfilled their commitments to their auditors, and regulators, if required.

The trouble is that nothing stays the same, especially if you work in financial services.

Since 2016, the UK has been preparing itself for life outside the EU. Prior to Brexit, one of the regular criticisms of the EU concerned the deluge of regulatory change forced upon the UK by the EU. However, once the decision was made to leave the EU, the question around regulation became key. Having complained for years, people started to query how the UK would maintain its Third-Party Equivalence with the EU standards and how that might affect business models.

In December 2022, the latest UK Chancellor announced the Edinburgh Reforms. This included the announcement of an updated Green Finance Strategy to be issued in early 2023.

What’s changed?

In an earlier article, we touched upon the UK’s approach to sustainable finance and were expecting an update on Green Taxonomy in late 2022. According to the Economic Secretary to the Treasury, Andrew Griffith, the Green Taxonomy has proved to be ‘a complex, technical exercise’. This is a sentiment echoed in other jurisdictions too, where regulators and governments face various challenges in implementing an appropriate taxonomy. Rest assured, sustainable finance is still on the agenda!

The plan is to repeal current EU law relating to financial services under the Financial Services and Markets Bill (FSMB), which is currently before Parliament with the second reading on 10 January 2023. Once approval is given, the Taxonomy regulations will be repealed. This means the technical screening criteria due to be enforced from 1 January 2023 no longer apply. The Government will then consider how it should modify the Retained EU Law (REUL) in the same way as other laws relating to financial services.

The broader plan:

Whilst there are many headlines focused on the Edinburgh Reforms, it’s worth noting that the Government first established its Future Regulatory Framework (FRF) Review in 2019. The intention was to identify a suitable strategy to ensure that the UK retained its leading position in the global financial services arena.

This naturally meant ensuring the UK embraces innovation and continues to attract foreign investment. The Government proposes to deal with the REUL by adopting a phased approach. Firstly, focusing on those areas already under review, and then turning its attention to a second wave of reviews.

This approach aims to ensure that focus is placed upon those areas that are likely to improve the UK’s growth and competitiveness. From the above table, we can expect a lot more to come on both Solvency II and the Wholesale Markets Review.

The list of reforms is long, and many recent articles have seized upon the idea of huge changes in the financial services. This may be true, but some of these changes have been signposted for a long time, even if we're still awaiting the finer details.

Compliance officers have a watching brief to monitor regulatory developments and to identify any potential impacts upon their business activities.

How do the reforms affect your firm? What are the revised rules and timeframes? How much time do you have to amend processes, train staff, and update any client facing documentation? What about the ability to demonstrate that the company executives have considered potential risks to their clients and adopted appropriate mitigants?

As Tranche 1 focuses on work that is already underway, firms need to be scanning for further regulatory and government consultations. The goal being to ensure that firms are able to adapt quickly to further regulatory changes that impact what may already be in the firm's pipeline.

Tranche 2 may seem trickier, but again, scanning the regulatory news and documents give insights into the regulatory approach and changes in policy. How do you keep yourself informed of regulatory developments? How quickly can you identify applicable changes to your business, and how well do you demonstrate compliance?

Our Ruleguard solution

Ruleguard has been designed to help firms demonstrate and evidence compliance, by using its comprehensive rules-mapping, risk and control tools, automated reporting features and powerful dashboards.

Ruleguard is your early warning system for new and changed rules - every regulator, every jurisdiction, in a single rules repository.

Our Rules Management functionality allows you to hook up to any regulator in any jurisdiction and subscribe to a feed of new and updated rules. Ruleguard keeps track of new, updated and removed rules and alerts you with an easy RAG display so you can easily trigger your internal applicability workflows to determine how the changes affect your firm.

Ruleguard is an industry-leading software platform designed to help regulated firms manage the burden of evidencing and monitoring compliance. It has a range of tools to help firms fulfil their obligations across the UK, Europe and APAC regions.

Please contact us for further information on:

Tel: 020 3965 2166 or hello@ruleguard.com.