Draft Financial Services (Overseas Recognition Regime Designations) Regulations 2025
(1 day, 20 hours ago)
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The Economic Secretary to the Treasury (Lucy Rigby)
I beg to move,
That the Committee has considered the draft Financial Services (Overseas Recognition Regime Designations) Regulations 2025.
It is a pleasure to serve under your chairmanship, Sir Roger. The draft regulations before the Committee support the Government in their operation of overseas recognition regimes. Specifically, they provide His Majesty’s 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.
As hon. Members know, the UK’s historical strength in global financial markets is built on our international openness and reach. Our ability to provide unilateral recognition where the regulatory framework in an overseas jurisdiction provides similar outcomes to the UK’s is an important tool to support cross-border financial services. Recognition can provide a range of regulatory benefits, which 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.
This recognition framework is common to other jurisdictions. For example, the EU maintains equivalence regimes, the United States makes comparability determinations in respect of other jurisdictions, and Australia operates a system that allows it to judge whether foreign regulatory regimes are sufficiently equivalent. The regulations promote consistency in regulatory standards, provide the foundation for long-term regulatory co-operation between jurisdictions, and support financial stability.
The regulations 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 ORRs and a memorandum of understanding agreed between HM Treasury and the financial services regulators. As the documents make clear, ORRs are the Government’s new harmonised approach through which the UK will recognise overseas jurisdictions’ financial services regulation and supervision.
The regulations support the Government in their operation of recognition regimes, specifically in relation to the designation of individual jurisdictions. As I said, the regulations will ensure that designations are assessed and implemented in a way that is compatible with our existing regulatory regime, and they will therefore support financial stability, market integrity, consumer protection and competition.
The regulations have three main functions: first, in relation to information and advice, the decision to designate an overseas jurisdiction is taken by HM 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 powers in the regulations update HM Treasury’s existing powers 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. As I said, an MOU is established between HM Treasury and our financial services regulators in accordance with the regulations.
Secondly, the regulations give the Treasury the power to impose conditions on the application of an ORR designation. The conditions are specific changes to the effect of a designation—for example, limiting the effect to a given size of firm—and ensuring that we can support cross-border financial services while assessing any areas of risk. This change will help to maintain consistency with the regulatory and supervisory standards that we expect in our markets.
Thirdly, the regulations make amendments to two existing ORRs. The Government previously established two ORRs covering insurance and short selling respectively, as part of the process of repealing assimilated EU law under the powers afforded by the Financial Services and Markets Act 2023. No new designations have been made under either of those two ORRs, meaning that there has been no need yet to use the powers in the regulations. The amendments to the regimes simply make the definition of an overseas jurisdiction consistent across all ORRs, including those already established, ensuring that there is a single approach across financial services regulation that can be easily understood, including by our international partners.
The regulations are clearly defined and limited in scope. Their sole purpose is to provide the Treasury with the powers needed to ensure that the designations of individual jurisdictions are assessed and implemented in a manner compatible with our existing regulatory regime. They will ensure we can operate ORRs 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.
Mark Garnier (Wyre Forest) (Con)
We welcome the general thrust of the regulations, which are all about the internationalisation of our financial services market, continuing our moving on from a post-Brexit Britain. I was not a fan of Brexit, but we are where we are. It is incredibly important that our financial services centre remains internationally competitive, and the regulations support that. I will not detain the Committee any longer—I can see smiles on Government Members’ faces. [Laughter.] Let us hope the Liberal Democrats continue in that spirit.
Question put and agreed to.