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The Report of the Taskforce on Innovation, Growth and Regulatory Reform makes bold and aspirational recommendations for reforming the U.K.’s approach to regulation as well as practical suggestions for implementing the reforms. The main recommendation tasks the government with building a U.K. regulatory framework that has proportionality at its core and that is based on the principles of U.K. common law. The report also provides specific proposals for regulatory reforms across several sectors, identified as high growth sectors, including the financial services sector.
The TIGRR recommendations will be progressed by the newly established Brexit Opportunities Unit, which is being led by Lord Frost, Minister of State at the Cabinet Office. Consultations on proposals to implement these ambitious recommendations are expected later this year. This note discusses these key recommendations, including those specific to the financial services sector. Shearman and Sterling are proud to have been a contributor to this important report.
Noting that the U.K.’s regulatory framework impacts its competitiveness, the TIGRR report recommends that it be reformed along traditional common law lines, moving away from the EU codified system. The report suggests that the government reconsiders the approach to regulation with the aim of enhancing productivity, encouraging competition, and invigorating innovation. To do this, the Taskforce proposes, among other things:
The TIGRR report makes three main recommendations for financial services. These are:
The Taskforce advocates that the U.K. returns to a common law principles-based approach to financial services regulation, freeing the U.K. of the rigid and too prescriptive EU approach. This is based on recommendations by Shearman & Sterling partner Barnabas Reynolds in his book “Restoring UK Law: Freeing the UK’s Global Financial Market,” which provides detailed analysis of the topic. Notably, the Taskforce goes further and recommends this approach is adopted for all regulated sectors, not only the financial services sector.
The report provides two examples where this can be put into action. The first example concerns the MiFID II position limits regime, which sets limits on the largest position a firm may have to a particular contract that is traded on an exchange. The TIGRR report states that the EU rules, while aiming to address the risk of a market squeeze, are too rigid and add unnecessary cost and complexity without enhancing protections. It is argued that a more discretionary approach, such as is adopted under the U.S. system, would achieve the same protections for critical contracts. This could be achieved by reviewing the scope of the contracts subject to the regime and weighing up appropriate exemptions.
The second example suggests introducing a more discretionary approach to calculating CCP margins. CCPs are required to run a model for the calculation of margin and obtain regulatory consent for any significant change to the model before adopting the revised model. This prescriptive approach is not suited for all situations, such as the recent negative oil prices in Texas. It also constrains innovation. Furthermore, the EU’s strict rules on holding of margin, such as the margin period of risk (known as MPOR) requirements could be better framed taking into account the approach of other jurisdictions.
The Taskforce report sets out four ways in which the government can meet this recommendation, some of which echo the Kalifa Review recommendations.
The Taskforce believes that many of the disclosure requirements inherited from the EU regime are not appropriate for the U.K. in its position outside of the EU. It recommends implementing a more proportionate regime that encourages the bespoke provision of information to clients instead of requiring prescriptive reporting that does not result in useful transparency for customers. Some of the examples highlighted in the report are:
 Report of the Taskforce on Innovation, Growth and Regulatory Reform, Growth and Regulatory Reform, Rt Hon Sir Iain Duncan Smith MP (Chair), Rt Hon Theresa Villiers MP, George Freeman MP, May 2021.
 The Independent Strategic Review of U.K. Fintech, led by Ron Kalifa OBE, was published in February this year. Many of the recommendations are aimed at ensuring the U.K.’s competitiveness, attracting investments for individual fintechs and raise the U.K.’s status as a global hub. See our blog for a more detailed description, “Kalifa Review of UK Fintech Published.”
 For details of the PRA’s proposals, see our blog, “UK Prudential Regulator Consults on “Strong and Simple” Prudential Framework for Small Banks. ” The consultation closes on 6 July 2021.
 The U.K. CBDC taskforce was announced in April this year, see “Bank of England and HM Treasury Announce Central Bank Digital Currency Taskforce.”
 The FCA recently consulted on removing the obligation on (i) execution venues to publish a report on a variety of execution quality metrics to enable market participants to compare execution quality at different venues; and (ii) investment firms who execute orders to produce an annual report setting out the top five venues used for executing client orders and a summary of the execution outcomes achieved. See our related blog, “UK Proposals to Ease Unbundling of Research and Best Execution Rules.” The FCA is expected to publish its final policy and rule changes before the end of this year.
 You may like to see our client note, “PRIIPs and Capital Markets Transactions: a Better Way Forward?” in which we discuss the scoping issues, restrictions on access and costs that the PRIIPS regime has caused for relatively simple products.
 See our blog, “European Supervisory Authorities Issue Guidance on Scope of Application to Bonds of the PRIIPs Regulation,” discussing the Supervisory Statement setting out the ESAs’ view of the scope of application of the PRIIPs Regulation to various types of bonds.