Draft Markets in Financial Instruments (Miscellaneous Amendments) Regulations 2025
Draft Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025
(Limited Text - Ministerial Extracts only)
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The Chief Secretary to the Treasury (James Murray)
I beg to move,
That the Committee has considered the draft Markets in Financial Instruments (Miscellaneous Amendments) Regulations 2025.
The Chair
With this it will be convenient to consider the draft Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025.
James Murray
It is a pleasure to serve under your chairmanship, Mr Stringer.
These two technical statutory instruments make practical changes that allow the Government to complete reforms to banking and wholesale markets regulation. Collectively, they ensure that our legislation for financial services remains effective and bring those areas of regulation in line with the model set by the Financial Services and Markets Act 2000. They do not introduce new burdens for firms and the changes have been widely supported by industry.
I will first address the Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025. Hon. Members will be aware that banks must hold capital buffers over and above minimum requirements to ensure that they can absorb losses yet keep lending, even in times of stress. This technical statutory instrument merely updates cross-references now that the buffer regulations have been restated under powers in the Financial Services and Markets Act 2023.
The process of bringing the buffers regulations in line with the FSMA model does three things. First, it revokes the 2014 capital buffers regulations, replacing necessary provisions with rules designed and maintained by the Prudential Regulation Authority and restating only limited elements that must stay in legislation, with minor operational tweaks. Secondly, it gives the PRA additional flexibility in setting the Basel-derived capital conservation buffer and the global systemically important institutions, or G-SII, buffer. Those buffers will now be set through PRA rule making rather than legislation, keeping to international standards while allowing flexibility. Thirdly, it keeps in statute the frameworks for the Financial Policy Committee’s countercyclical and other systemically important institutions, or O-SII, buffers, which will ensure that the FPC has a clear statutory basis on which to deploy these tools. It also tweaks the framework to improve its overall effectiveness. For example, the FPC may now adjust the countercyclical buffer off-cycle in an emergency.
I will now turn to the Markets in Financial Instruments (Miscellaneous Amendments) Regulations 2025. The markets in financial instruments directive, also known as MiFID, is an EU-inherited framework that governs the regulation of financial markets and the trading that happens on them. One part of the framework is the MiFID organisational regulation, which specifies how investment firms must organise themselves and operate their business.
At Mansion House 2024, the Chancellor committed to revoke the firm-facing regulatory requirements in the MiFID organisational regulation for the financial services regulators to replace in their rules. By delegating responsibility for setting the regulatory requirements to the Financial Conduct Authority and the Prudential Regulation Authority, the regulators will be able to use their day-to-day experience of supervising financial services firms to ensure the rules are tailored to the UK and proportionate for UK firms.
The MiFID organisational regulation also includes key definitions that investment firms rely on to interpret the regulatory perimeter. As such, it is essential to maintain those definitions in legislation. That is what the draft regulations do: they ensure that key definitions from the MiFID organisational regulation are maintained in legislation. That ensures that there will be no gaps in regulation when the MiFID organisational regulation is revoked and the regulators replace firm-facing provisions in their rules.
To conclude, the statutory instruments are a necessary step to complete reforms to our banking and wholesale markets regulation and to ensure that our regulatory framework remains coherent, effective and tailored to the needs of the UK’s financial sector. I welcome any questions and commend the regulations to the Committee.
Mark Garnier (Wyre Forest) (Con)
It is a great pleasure to speak in this incredibly dry debate about incredibly technical aspects of regulation. I am only disappointed not to see the new Economic Secretary to the Treasury make her debut today, although it is always nice to see the Chief Secretary.
Mark Garnier
Quite right. The hon. Gentleman’s leader is with the parliamentary Labour party right now, I think, which will be very exciting.
The regulations are technical, dry but welcome changes to the detailed firm-facing regulations and definitions in the MiFID organisational regulations and capital buffers regime. They follow the comprehensive changes to regulation and tax that the last Government introduced through the Edinburgh reforms, while helping to implement the announcements the Chancellor set out in her 2024 Mansion House speech.
We on the Conservative Benches will always support reforms that aim to make the UK financial market more competitive and growth-oriented. Our financial services are our biggest export and it is vital that we do everything we can to ensure we keep them competitive with their counterparts in Europe and the rest of the world, while at the same time ensuring the UK is a principal destination for international capital. Let me be clear that we support the considered approach being presented, which will allow us to embrace the regulatory autonomy that Brexit provides while keeping us relatively aligned to EU frameworks such as MiFID. That is important because although we need to innovate to maintain our competitive advantage, we must equally avoid trying to reinvent the wheel on financial services regulation.
I push the Minister to look at the wider regulatory burden that MiFID II has placed on UK financial firms. Many in the sector think the reporting obligations, investor protection rules and governance standards have imposed significant compliance costs and operational complexity. Although the intention is noble, we can over-regulate and we must remember that risk will always be something that we cannot remove completely. That was highlighted in a submission by UK Finance to a recent House of Lords Committee inquiry that showed that the rules have constrained the City’s ability to innovate and grow capital markets.
Although we welcome the regulations, the Government now have the freedom to go further and simplify the onerous rules MiFID II introduced. Doing so would unlock growth in our financial services sector and help us to regain ground lost to competing hubs such as New York and to emerging financial centres in the EU. Nevertheless, we have to accept that the EU is our largest trading partner, so it is right that the changes do not significantly deviate from what was in place before. As I said, the UK deviating to a new regulatory regime would not necessarily help our cause.
We also welcome the fact that the changes will help to make the UK more responsive to emerging trends and risks. That is crucial as we seek to be competitive in an ever more volatile world and it would be remiss of me not to mention that many stakeholders feel the regulatory burden placed on them by the FCA and PRA is already too high and, in some instances, unnecessary. Although the changes should not increase that burden significantly, I hope the Minister and Treasury officials will be mindful of that when making changes in the future.
All together, we broadly welcome the technical changes that the regulations introduce as they will help to streamline capital market regulation and ensure legal coherence. I was going to ask some questions, but I think in the interests of time we can probably pass on that—we do not want to keep anybody waiting. I will leave it at that.
James Murray
I thank the shadow Minister for his speech, for his broad support for what we are seeking to achieve and for the brevity of his contribution this evening. I welcome his support and note the points that he raised. He asked what the Government are prioritising in considering which parts of MiFID to reform. The Leeds reforms announced that the Government are committed to continuing to review and reform the MiFID framework in partnership with the FCA and I can reassure him that, obviously, the Government will make changes where there are clear opportunities to remove burdensome requirements and cut costs for investment firms.
I think we all agree that the regulations support the UK’s transition to a modern, proportionate regulatory regime that upholds high standards while supporting the competitiveness of our financial services sector, which the shadow Minister spoke about. I thank him and other hon. Members for attending the Committee tonight.
Question put and agreed to.
Draft Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025
Resolved,
That the Committee has considered the draft Financial Services and Markets Act 2023 (Capital Buffers and Macro-prudential Measures) (Consequential Amendments) Regulations 2025. —(James Murray.)