New regulatory powers Implementation of mutual recognition agreements
Outside of the EU, the UK is able to negotiate its own international trade agreements, including Mutual Recognition Agreements (MRAs) related to financial services. These MRAs are intended to provide recognition of rules and practices in other jurisdictions to allow both the UK and its MRA partners to defer to each other in respect of the regulation and supervision of both UK and overseas firms undertaking cross border financial services activity. MRAs therefore offer a practical way to promote openness and mutual market access between jurisdictions, supported by regulatory and supervisory cooperation. The UK is in the process of negotiating a financial services MRA with Switzerland. The UK hopes, in the future, to enter into MRAs with other jurisdictions.
	The UK has a dualist legal system. This means that a treaty ratified by the government does not alter the laws of the State unless and until it is incorporated into domestic law by legislation. As a consequence, international agreements, such as MRAs, must be implemented in domestic law in order to ensure that the UK can meet its international obligations under such agreements. Not all obligations within an MRA will require a change to domestic law, but it is a convention in the UK that an international treaty is not ratified until it has been fully implemented.
	The Act provides for HM Treasury to make changes to domestic legislation necessary to ensure that MRAs can be fully implemented, using secondary legislation subject to the affirmative procedure. This includes the ability to grant any additional powers to the financial services regulators that are required to give effect to MRAs. It is intended that this provision will be used to implement the MRA on financial services which is currently being negotiated with Switzerland, and any future financial services MRAs.
	Currently in financial services regulation, market access between the UK and other jurisdictions is generally delivered through the UK’s equivalence framework for financial services, which is operated by HM Treasury as set out in more detail in the guidance document for the UK’s Equivalence Framework for Financial Services, published on 9 November 2020. The equivalence framework provides mechanisms for HM Treasury to determine that, in specific areas of regulation, another jurisdiction’s regulatory and supervisory framework are equivalent to the UK’s. This serves to facilitate cross-border financial services activity in relation to that equivalent jurisdiction by permitting market access and reducing regulatory frictions or costs to firms. These mechanisms are primarily found in retained EU law (by virtue of the European Union (Withdrawal) Act 2018) and were previously operated by the European Commission. The MRAs negotiated by the government may in some cases go further than, or function differently to, these existing equivalence mechanisms. The power that the Act provides to HM Treasury to implement MRAs therefore includes the power to modify the application of existing equivalence mechanisms or create new mechanisms to reflect what has been agreed in the relevant MRA.
	It may also be appropriate to adjust the powers and functions of the financial services regulators set out primarily in FSMA 2000 in order to ensure that they are equipped to give effect to MRAs, including ensuring that they have appropriate rule-making powers. The regulators must continue to act in a way that furthers their statutory objectives.
	The MRAs are intended to be "living agreements" such that the scope may evolve or expand over time in accordance with the desire of the parties. This could include amending or expanding their scope to take account of new developments in financial services sectors and possible future legislative changes. Taking account of this possibility, the Act allows for the implementation of any amendments to or extension of the scope of MRAs as and when the UK and its MRA partners agree to such changes.
	As with most international treaties, any MRAs for financial services made in the future will be subject to parliamentary scrutiny before ratification, as set out in the Constitutional Reform and Governance Act 2010 (CraG). As part of the process, the government will set out in the explanatory memorandum accompanying any MRA how it intends to implement its terms in domestic law. Only once an MRA has both been scrutinised by Parliament pursuant to the CraG process and all necessary domestic implementation has been completed will an MRA be ratified and enter into force.