2.5 The UK Government, EU Influence and International Standards

Financial services do not operate in a vacuum. Government economic and industrial policy, the legacy of EU membership, and standards set by international bodies all shape the rules that UK firms and advisers must follow. This section covers each in turn.

UK Government Policy Levers

The UK government — primarily HM Treasury (HMT), the Treasury select committee, and the Chancellor of the Exchequer — influences financial services through five linked policy areas.

Economic policy

Fiscal and monetary policy set the macro environment in which financial services operate. Fiscal decisions (spending, borrowing, tax rates) affect demand and interest rates; monetary policy is set independently by the Bank of England (see section 2.6). Government policy that lowers inflation and supports growth creates a stable backdrop for saving, investing and lending; instability does the opposite.

Industrial policy

The government's industrial strategy (currently 'Invest 2035') identifies sectors for growth support, including financial services. The Mansion House Compact — voluntary agreements between government and major pension funds to allocate more to UK productive assets — is an example of industrial policy shaping the flow of capital through financial markets.

Regulation

The government creates the regulatory architecture: the Financial Services and Markets Act 2000 (FSMA), as amended by the Financial Services and Markets Act 2023, sets up the FCA, the PRA and the FPC. The Treasury can make 'called-up' instruments that direct regulators on specific matters. Post-Brexit, the government's policy has been to use the Future Regulatory Framework Review to move retained EU law into UK-specific rulebooks.

Taxation

Tax policy directly shapes financial behaviour. Examples:

From April 2027 the Cash ISA allowance is set to fall to £12,000 for under-65s, with the overall ISA allowance remaining at £20,000 for Stocks and Shares and Innovative Finance ISAs. Tax changes feed directly into advice.

Social welfare policy

The State Pension, the State Pension age timetable, Universal Credit, pension credit and other welfare programmes set the baseline against which private financial advice is given. The triple lock on State Pension increases, and the planned rise in State Pension age, are examples of social welfare policy that affects retirement planning.

EU Influence After Brexit

The UK left the EU on 31 January 2020 and the single market at the end of the transition period on 31 December 2020. EU law no longer applies directly in the UK, but the EU continues to influence UK financial services in three ways.

Retained EU law and the FRF Review

Large parts of EU-derived regulation — the UK's version of MiFID II (now in COBS and related Handbook sourcebooks), the UK CRR, EMIR and the AML regulations — were retained and converted into UK law at the end of the transition period. The Financial Services and Markets Act 2023 revoked retained EU law in financial services and gave the FCA and PRA power to rewrite it into UK-specific rules. The result is a rolling programme of replacement rulebooks (e.g. the new UK prospectus regime, the new UK listings regime in PS24/9, and ongoing changes to consumer credit and mortgages rules).

Equivalence

UK firms' access to EU markets now depends on equivalence determinations — the EU's assessment that UK regulation is 'as good as' EU regulation. Equivalence is partial (covering specific areas such as clearing and depositary services), revocable at short notice, and has been granted only sparingly. UK clearing houses (LCH, ICE Clear Europe) retain temporary equivalence for EU clearing members.

UK–EU Memorandum of Understanding

In 2023 the UK and EU signed a Memorandum of Understanding on regulatory cooperation establishing a voluntary framework for structured information exchange between UK and EU regulators. This is the post-Brexit successor to the close pre-2020 relationship. It is not a substitute for passporting.

International Standards Bodies

Although national regulators make the binding rules, the global standards bodies shape them. UK regulation is heavily influenced by four bodies.

Basel Committee on Banking Supervision (BCBS)

Hosted by the Bank for International Settlements (BIS) in Basel, the BCBS sets international standards for bank prudential regulation — capital adequacy, liquidity, leverage and disclosure. Basel III (in response to the 2008 financial crisis) and the ongoing Basel 3.1 revisions are implemented in the UK through the PRA Rulebook (the UK CRR and the PRA's own rules). The BCBS has no legal force in the UK; its standards only bind once adopted by the PRA.

International Organization of Securities Commissions (IOSCO)

IOSCO is the global body of securities regulators, including the FCA as a member. Its Objectives and Principles of Securities Regulation (38 principles covering issuer disclosure, market structure, intermediaries, collective investment schemes and enforcement) provide the international benchmark for securities regulation. The FCA aligns its rules with IOSCO principles, and the UK is assessed against them by the International Monetary Fund under the Financial Sector Assessment Programme.

Financial Action Task Force (FATF)

The FATF, based in Paris, sets the global standards for anti-money laundering (AML) and counter-terrorist financing (CFT). Its 40 Recommendations are the basis of UK AML law — the Proceeds of Crime Act 2002, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (as amended), and the FCA's Financial Crime Guide. FATF conducts mutual evaluations of member states; the UK's most recent assessment judged its AML regime 'substantially effective'.

IFRS Foundation and International Accounting Standards Board (IASB)

UK listed companies prepare consolidated accounts under UK-adopted IFRS, which are IFRS Accounting Standards as adopted by the UK Endorsement Board. IFRS is set by the International Accounting Standards Board (IASB) under the IFRS Foundation. Consistent global accounting standards allow investors to compare companies across jurisdictions and reduce the cost of capital.

graph TD
    HMT["HM Treasury"] -->|Creates statute| FSMA["FSMA 2000 / 2023"]
    FSMA --> FCA["FCA"]
    FSMA --> PRA["PRA"]
    FSMA --> BoE["Bank of England / FPC"]
    BCBS["Basel (BCBS)"] -->|Standards implemented| PRA
    IOSCO["IOSCO"] -->|Principles align| FCA
    FATF["FATF"] -->|AML recommendations| FCA
    IFRS["IFRS Foundation / IASB"] -->|UK-adopted IFRS| ListedCos["UK Listed Companies"]
    EU["EU equivalence & MoU"] -.->|Conditional access| FCA

Key Takeaways for the Exam

• Five UK government levers: economic, industrial, regulatory, taxation, social welfare.
• Post-Brexit EU influence continues through retained law (now being replaced), equivalence determinations and the UK–EU MoU.
• Basel standards are implemented via the PRA Rulebook; IOSCO principles guide the FCA; FATF recommendations underpin UK AML; UK-adopted IFRS governs listed-company accounts.
• International standards are not directly binding — they are adopted into UK law and rulebooks.