Financial Services (Overseas Recognition Regime Designations) Regulations 2025

Baroness Kramer Excerpts

Wednesday 17th September 2025 Grand Committee

[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.