As we lurk in the twilight zone of the undead, half in the EU and half out of it, we start to see signs of what UK regulation will look like when we are resurrected. The appointment of a new Chief Executive at this tipping point is bound to have significant influence over the re-orientation of the FCA, as it loses its puppet strings and its ability to blame EU legislative deficiencies for consumers’ sufferings and for the heavy weight of the regulatory burden on the industry.

As yet, the extent to which UK regulators will continue to follow the EU up hill and down dale remains among the known unknowns. It is not difficult to recognise the simple convenience of using EU initiatives to drive regulatory change at home while glued to comfortable equivalence. But, with the obligation to follow suit removed, that approach will no longer be the regulator’s safe harbour that it once was. Each aspect of EU tracking will have to be justified, both at the time of adoption and retrospectively when trouble strikes.

Exhibit A is FCA’s recent Discussion Paper on the new prudential regime for investment firms (https://www.fca.org.uk/publication/discussion/dp20-2.pdf ). This time the FCA has a host of opportunities to justify continued alignment. Not only has the UK played a leading part in the development of the EU’s new regime over the past few years, but the regime itself has the useful characteristic of unwinding what has never really been granted full recognition as probably the most egregious example ever of gold-plating, committed by the EU itself, of the Basle Accord. When one-size-fits-all means hitting investment firms with banking capital requirements, as the EU achieved in the CRD, the scale of the problem is plain. Decades later the problem is being addressed. Could it just be that discriminating against the investment sector has lost its appeal now that we have moved on?

So, it’s not difficult for FCA to go with the EU flow this time. But even as it does so, the regulator hints at its own reservations over the adequacy of aspects of the new regime, most notably the single month of operation that is funded by the proposed liquidity requirement. Will the consumer lobby stiffen the regulator’s resolve by demanding higher standards? Might even industry players press for enhancements that one day may reduce collateral damage that they become exposed to? Maybe. Just maybe. Perhaps at least the trade debtors, whether sporting an un-coronavirus haircut or not, might get excluded.

And there are no prizes for having predicted that FCA would be keen on the K-factor. Although due to be disapplied to defenceless SNIs, after years of focus on capital for self-preservation, the K-factor is the mechanism by which regulation turns its attention to the capital required to address the risk of damage to others. Experience over the years has shown that reparations can make significant dents in even substantial P&L account.

But, as ever, the hand to watch is the one not doing the trick.  HMT’s diminutive twelve-page Policy Statement, on the self-same topic and published the self-same day (Prudential_policy_draft_policy_statement_V4.pdf ), purports to tell us how government will facilitate the regulator’s efforts. Primary legislation will of course be needed to undo on-shored capital requirement regulations, but that is not quite where it ends. Among the overarching principles that HMT intends to follow, when legislating for the way in which prudential standards are to be determined, are support for the ‘government’s wider objectives on growth, competition and competitiveness’ and ‘enabling the UK to maintain a strong future partnership with the EU and other major economies’. If that does not set the alarm bells ringing, read on. A new accountability framework will create additional requirements on the regulators when making rules ‘to ensure that the wider objectives of the government and Parliament are taken into account.’ This and related measures will have the advantage that, in the process of designing and implementing the specific requirements that apply to firms, there is ‘appropriate democratic policy input’. How small is the leap from that to a much more politicised regime?