Financial Services (Overseas Recognition Regime Designations) Regulations 2025

Wednesday 17th September 2025 Grand Committee

Considered in Grand Committee

17:37

Moved by

[Lord Livermore]

That the Grand Committee do consider the Financial Services (Overseas Recognition Regime Designations) Regulations 2025.

[The Financial Secretary to the Treasury (Lord Livermore) (Lab)]

My Lords, the regulations before the Committee today will help ensure the effective operation of overseas recognition regimes. Specifically, they provide the Treasury with the powers needed to ensure that designations of individual jurisdictions are assessed and implemented in a manner that is compatible with our existing regulatory regime.

I will briefly set out the context in which these regulations are being introduced. The UK’s historic strength in global financial markets is built upon its international openness and reach. Our ability to provide unilateral recognition where the regulatory framework in an overseas jurisdiction provides for similar outcomes to the UK’s is an important tool to support cross-border financial services. Recognition can provide a range of regulatory benefits. These include enabling overseas firms to provide services directly into the UK, aligning requirements on UK-authorised firms whether they are engaging with UK or overseas markets or counterparties and providing regulatory relief by removing duplicative requirements on cross-border business.

Other jurisdictions also maintain provisions that allow them to recognise overseas regulatory frameworks. For example, the European Union maintains equivalence regimes; the United States makes comparability determinations in respect of other jurisdictions; and Australia operates a system that allows it to judge foreign regulatory regimes as sufficiently equivalent. These provisions promote consistent regulatory standards, provide the foundation for long-term regulatory co-operation between jurisdictions and support financial stability.

The regulations today were first published in draft form to coincide with the Chancellor’s Mansion House speech in July, alongside a guidance document that outlines the principles and processes governing overseas recognition regimes and a memorandum of understanding signed by the financial services regulators. As noble Lords will be aware, overseas recognition regimes are a new approach through which the UK will recognise overseas jurisdictions’ financial services regulation and supervision. The regulations support the effective operation of these regimes, specifically in relation to the designation of individual jurisdictions. They will ensure that designations are assessed and implemented in a manner that is compatible with our existing regulatory regime and thereby safeguard financial stability, market integrity, consumer protection and competition.

I turn to how the regulations will work in practice. They have three main functions. The first is in relation to information and advice. The decision to designate an overseas jurisdiction is taken by Treasury Ministers on the basis of an assessment undertaken by officials with technical advice from our expert regulators and made by statutory instrument laid before Parliament. The regulations give the Treasury the power to request information and advice from the Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority as part of the process of assessing and then designating an overseas jurisdiction. A memorandum of understanding is established between the Treasury and the UK financial services regulators in accordance with these regulations.

The second function relates to conditions. The regulations give the Treasury the power to impose conditions on the application of an overseas recognition regime designation. These conditions are specific changes to the effect of a designation, for example, limiting the effect to a given size of firm, so ensuring that we are able to support cross-border financial services while addressing any areas of risk. This change will help to maintain consistency with the regulatory and supervisory standards that we expect in our markets.

The third function is to make amendments to two existing overseas recognition regimes. The Government previously established two overseas recognition regimes covering insurance and short selling under the powers afforded by the Financial Services and Markets Act 2023. No new designations have been made under either of these two new regimes, meaning that, as yet, there has been no need to use the powers in the regulations we are introducing today. The amendments to these regimes are simply to make the definition of “overseas jurisdiction” consistent across all overseas recognition regimes, including those already introduced, ensuring that there is a single approach across financial services regulation that is easily understood by firms and our international partners.

These regulations are clearly defined and limited in scope. Their sole purpose is to provide the Treasury with the powers needed to ensure that designations of individual jurisdictions are assessed and implemented in a manner that is compatible with our existing regulatory regime. They will ensure that we can operate overseas recognition regimes effectively and thereby support the global competitiveness of the UK’s financial sector, facilitate cross-border financial services and provide a consistent approach across financial services legislation. I beg to move.

[Baroness Kramer (LD)]

My Lords, I fully understand that this statutory instrument updates the basis on which the UK grants equivalence to the financial law and market practice of overseas jurisdictions. The Treasury obviously needs the powers to designate, limit or revoke equivalence. I am rather bemused that the Treasury seems to need new powers to get advice and information from the relevant regulators, but so be it, if that has previously been omitted.

However, I have some sense of caution around all this. As I read the Treasury’s guidance document, it seemed very weighted to change the decision-making process away from looking at the appropriateness of rules and regulations in overseas jurisdictions through the lens of whether they could contribute to financial instability in the relationship generated in the UK and much more towards whether they are compatible with the Government’s policy outcomes.

17:45

The Committee will know that I am troubled somewhat by the focus on growth and competitiveness, which seems to allow a diminution in the significance of financial stability in order to promote what one could describe as commercial objectives. Can the Minister comment on that? For example, the document proclaims that the changes will allow overseas jurisdictions much more flexibility to change their rules but keep their equivalence status.

There was a time when broader flexibility really would not have mattered, because multilateral forums played a major role in shaping global financial law and markets, but we now have the United States and China—it goes beyond China—despising, in essence, such a global framework. Add to that the rapid advance in the role of digital currency and the changes that that will drive in the whole shape of financial services, and I am concerned that the Treasury is becoming more relaxed—perhaps more naive, too—at a time when we are moving into an area of greater change and greater risk. To me, this is all compounded by the lack of transparency in decisions on financial regulations, which seems to have been a feature—indeed, a hallmark—of the post-Brexit regime.

I also take the view that we cannot simply think of the regulators as a check on a Treasury that has become overly optimistic or in any way naive; it certainly was naive for many years during an era of light-touch regulation. We cannot rely on regulators to act as a check on any questionable equivalence decisions, because they, too, are now shifting their stand in so many areas—again, motivated by the competition and growth objective. Again, the issue of transparency becomes crucial, in my eyes. Will the regulators’ advice to the Treasury become public anyway? Will it be notified to Parliament? If so, in what detail and on what kind of timetable? Will it be in a timely manner?

I have said that a lot of my anxiety sits around the rapid expansion of digital currencies. There has been a rapid advance, whether it is the renminbi as a fiat digital currency in China or, much more recently, the growth of renminbi stablecoin, which we know will spread far beyond the Chinese boundaries and is seen in many countries as a defence against the dollarisation that comes with the US’s focus on a global stablecoin. There is also the development of the dollar stablecoin, which is not just confined to the United States but has already become a major player across the Americas and in some non-EU parts of Europe; it is changing financial norms.

This is happening in some areas that we would all condemn. Tether stablecoin is the “cryptocurrency du jour” in the world of money laundering and is used widely to enable sanctions-busting by Russia and by organised crime, especially drug traffickers. I am sure that the NCA will gladly explain that to the Government if they are not entirely aware of it.

The UK has been very slow to decide on how to respond to the reality of digital currency—dangerously slow, in my opinion. We now risk equivalence decisions being made to suit broad policy goals that will drag down the UK financial system. The Minister said that there is an impact on aligning rules in the UK with firms overseas—I become quite troubled by that—through the process that seems to be described here. I wonder to what extent the Government actually look at equivalence decisions—perhaps most especially for dollar stablecoin, because it has huge implications for UK monetary sovereignty. Dollar stablecoin is not the same as dealing with the current Eurodollar system, which has, in essence, escaped US jurisdiction. Dollar stablecoin is very much within the purview of the US Government, who are perfectly capable of using it for political purposes, not just in order to provide economic efficiency.

I have one final comment. The UK has kept its role as a major player in global financial services because of its reputation for having reasonable rules but respecting rules. I want to be sure that the Government are being very careful not to damage that reputation.

[Baroness Neville-Rolfe (Con)]

My Lords, I am grateful to the Minister for introducing the statutory instrument crisply and clearly. I am also grateful to the noble Baroness, Lady Kramer, for her usual well-informed comments, including those on the digital aspects of this proposal. I think that I am, however, more in favour of growth and competition than she is.

I start by saying how important secondary legislation of this nature is. The topic of debate today is the modified reinstatement of legislation that we as a Parliament passed during the process of exiting the European Union. Now that we are able to table such legislation on our own terms, we can bring it fully in line with domestic regulations, to the benefit of British services.

Cross-border financial services must be both secure and effective. This is why having similar regulatory frameworks to collaborative countries is so important. It is all well and good having an efficient domestic system, but if that system is not aligned with foreign trading partners, markets are likely to be boxed in and limited. Some form of alignment criteria must therefore be established to allow cross-border services to function. The outline measures aims to define the parameters within which an overseas jurisdiction may be recognised as equivalent to that of the United Kingdom.

It is also welcome that His Majesty’s Treasury, in addition to the described powers of imposition or limitation of conditions on an overseas recognition regime, will now have the powers to require regulators to provide relevant information to support equivalence decisions, and will be required to co-ordinate with the relevant bodies when processing overseas recognition regime designation cases. This will help speed up and standardise the decision-making of such cases.

Although the Minister said that these powers may not be used very often, I have two questions. First, the Treasury requires either information or advice from a regulator. If it needs that, it must, by notice,

“specify a reasonable period within which the information or advice must be provided”.

What would be considered “a reasonable period”? Perhaps the Minister could clarify the timescales. We want to see efficiency in the interests of stakeholders, and we sometimes seem to be rather slow in the financial services sector. That is one of the reasons I have four Questions for Written Answer tabled today about the progress of the post-Brexit changes in financial regulation, which we initiated and would like to see the Government complete. I would be very happy to hear today how the Treasury is getting on.

Secondly, the Explanatory Memorandum states that the

“advice that the Financial Services Regulators will be asked to provide”

by the Treasury

“will be agreed on a case-by-case basis”.

The scope for this seems too wide. I am aware that it is specified in the legislation that advice may be given only in relation to an overseas recognition regime designation, or a proposal for one, but the breadth of these designations seems wide. Will the Minister consider issuing some further guidance on the extent of the information that the Treasury is able to ask for in the name of ORR designations?

I look forward to the Minister’s response. In closing, I say that the Official Opposition support the statutory instrument and the measures to encourage a growing, healthy, open—in the Minister’s words—and competitive UK financial sector.

[Lord Livermore (Lab)]

My Lords, I am grateful to both noble Baronesses for their detailed comments and scrutiny, as well as for their support for this secondary legislation.

The noble Baroness, Lady Kramer, asked a number of questions, which I will seek to address. First, she initially expressed her surprise that the Treasury required these new powers. I am told that this instrument replaces a similar instrument: the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019, which gave the Treasury the power to request information from the regulators when considering decisions under assimilated equivalence regimes. The Treasury has exercised the powers contained in the 2019 regulations in support of equivalence decisions made since our EU exit. To date, no new decisions have been taken under any ORR, meaning that the powers in this instrument being introduced today have not yet been required.

The noble Baroness, Lady Kramer, also spoke about her concerns—we have discussed them before in the main Chamber—around the Government’s overall agenda of rebalancing from risk towards growth and competitiveness. As the noble Baroness knows, the Chancellor has expressed her clear view that she wants to see greater emphasis on growth and competitiveness, but she has absolutely discussed how central the financial services sector is to the Government’s modern industrial strategy and the key role that it plays in financing growth across the economy. She remains committed to the highest standards of regulation and does not see those things as being in tension—the noble Baroness knows that; we have discussed it before. I do not necessarily agree with the noble Baroness’s concerns, in that there is absolutely no question of a race to the bottom on regulation. The UK will remain a global leader in promoting the highest standards that deliver for businesses and consumers across the UK.

The noble Baroness, Lady Kramer, asked a specific question about how the process will work and whether it is becoming too politicised. I do not think that that is the case. Many other countries have similar regimes; for example, the US makes comparability assessments. As I said in my opening remarks, the EU has equivalence, and our recognition process is consistent with international norms. Our guidance document sets out our approach. We have been clear that robust standards, safeguarding outcomes and technical advice from our expert regulators are all key factors in decisions on whether to designate another jurisdiction.

The noble Baroness, Lady Kramer, also asked about publishing regulator advice. The Treasury will always, as part of its designation process, summarise the evidence that it has received and considered in relation to the other jurisdictions’ regulatory frameworks.

I am grateful to the noble Baroness, Lady Neville-Rolfe, for her support for this statutory instrument. The drive towards growth and competitiveness, and the importance of this sector in doing that, is one of the rare areas on which we agree. I am also grateful for the noble Baroness’s support for the Mansion House announcements that the Chancellor made, building, as all Chancellors do, on the previous Chancellor’s work in this area.

The noble Baroness, Lady Neville-Rolfe, she asked two questions: one about timescales and another about speed. Unfortunately, I cannot read the answer that has been given to me. I will ask my team whether we have an answer on the scope of the designations. I will write to the noble Baroness on the two points that she made, if she does not mind.

Motion agreed.

Committee adjourned at 5.58 pm.