The U.K. Financial Conduct Authority has published its Rule Review Framework, setting out how it will set, measure and monitor the outcomes of its Handbook rules. The Rule Review Framework was mandated under the Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services). The FSM Act 2023 transferred responsibility for making detailed rules to the U.K.’s regulators, significantly increasing their powers. To ensure proper oversight of the use of those powers, the FSM Act 2023 provides for an enhanced regulatory accountability framework, which includes requiring the FCA (and the Prudential Regulation Authority, which consulted on its proposed in 2023) to keep their rules under review and publish a statement of policy on how they conduct those reviews.
The final Framework largely reflects the FCA’s Draft Framework upon which it consulted in 2023. The FCA will conduct three main types of review:
- Evidence assessments, triggered by market monitoring and stakeholder input that indicates a rule is not working as intended. The new Framework includes a Rule Review Feedback Tool, enabling stakeholders to notify the regulator where they think a rule is not achieving its intended outcome. The regulator will collect evidence on the outcomes of the rule or policy measure, to establish whether it has achieved, or will achieve, its intended outcomes and if market developments have impacted the effectiveness of the rule.
- Post implementation reviews, triggered by an evidence assessment which suggests a more in-depth review is required, or planned in advance at the policy development stage. The FCA will consider whether a rule or policy measure has been successful or caused unintended effects and whether there were obstacles to implementation or if the measure could be improved.
- Impact evaluations, which are planned at the policy development and implementation stage. The FCA will evaluate the impact of a rule or policy measure. They will be conducted in a range of situations, including where a rule generates upheaval in the market, gives rise to the potential to learn lessons which are relevant to future work (e.g., policy change) or the regulator was unsure of the outcomes when implementing the rule.
Following responses to its consultation, the FCA has committed to publishing an overview of its implementation of the Framework as part of its Annual Report. It has also acknowledged the potential burden on firms of providing data to support the reviews and has committed to proportionality when requesting data and maximizing the use of information it already holds. The FCA plans to prioritize rule reviews based on the scale and urgency of the potential harm to markets caused by the rule in question.
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