Overseas Prudential Requirements Regime (Credit Institutions and Investment Firms) Regulations 2026

My Lords, the Committee will consider together two statutory instruments made under the Financial Services and Markets Act 2023, known as FSMA 2023. Although these instruments address different areas of financial regulation, they share a common purpose, which is to ensure that the UK’s regulatory framework remains stable, proportionate and internationally competitive. Together, they provide greater certainty for firms, preserve appropriate regulatory safeguards and support the continued effective functioning of UK financial markets. The first instrument supports the Government’s wider programme of replacing retained EU legislation by creating a new overseas prudential requirements regime. The second concerns over-the-counter, or OTC, derivatives and establishes a permanent regulatory framework for certain intragroup transactions. I will address each instrument in turn, beginning with the overseas prudential requirements regulation. The first instrument is the Overseas Prudential Requirements Regime (Credit Institutions and Investment Firms) Regulations 2026. Following EU exit, the UK retained a body of EU-derived financial services legislation, known as assimilated law. This includes the capital requirement regulation, or UK CRR, which sets detailed prudential requirements for credit institutions, such as banks and building societies, and for larger investment firms. In 2025, the Government consulted on their approach to repealing a number of equivalence provisions currently contained in that assimilated law. This instrument delivers that approach. In particular, it restates the existing UK CRR equivalence regimes within a single overseas prudential requirements regime, helping to make the prudential framework easier to navigate while maintaining continuity for firms. Existing equivalence decisions will be preserved as overseas regime decisions under the new framework, providing continuity and certainty for firms. This forms part of the Government’s wider programme under the Financial Services and Markets Act 2023 to repeal assimilated financial services law while preserving the necessary policy outcomes. This supports the implementation of the FSMA model of regulation, under which detailed firm-facing requirements are set in regulators’ rulebooks rather than in legislation. As part of this wider reform agenda, the Government are replacing the existing equivalence regimes inherited from the EU with overseas recognition regimes that are tailored to the UK’s needs and reflect the Government’s outcomes-focused approach to the unilateral regulatory recognition of overseas jurisdictions. This instrument is intended: first, to consolidate currently fragmented equivalence provisions into a single, coherent regime, while maintaining continuity for existing CRR equivalence decisions; secondly, to adjust the treatment of exposures to overseas exchanges so that capital treatment better reflects the underlying risk; thirdly, to replace the definition of “third-country investment firm” with “overseas investment firm” while maintaining the overall scope and effect of the existing treatment; and, finally, to enable the Government, subject to a further statutory instrument and parliamentary approval, to recognise eligible covered bonds from overseas jurisdictions in the future. I turn to the second instrument, which makes a targeted and important reform to the UK’s framework for regulating OTC—over-the-counter—derivatives, those traded directly between buyer and seller, by addressing intragroup transactions. It replaces the temporary intragroup exemption regime, known as TIGER, with a permanent framework. In doing so, it provides firms with long-term certainty while preserving appropriate safeguards and regulatory oversight. As I think all my audience knows, derivatives are contracts whose value is linked to an underlying asset, benchmark or index. They are widely used by businesses to manage risks. Intragroup transactions, where companies within the same corporate group are counterparties to a derivative contract, allow groups to manage their risks efficiently. The benefits of intragroup transactions are well recognised, so exemptions from certain clearing and margin requirements for certain transactions are a feature of regulatory regimes in the UK and in other jurisdictions. TIGER was introduced following EU exit to provide a temporary regime for exempting certain transactions between a UK counterparty and an entity within the same group located in a jurisdiction that has not been declared equivalent under UK legislation. It was only ever intended to be a temporary measure and, having been extended once already, it is due to expire at the end of 2026. The Government consider that a further, time-limited extension would not provide the long-term framework that firms need. This instrument therefore establishes a permanent framework for qualifying intragroup transactions with overseas group entities to benefit from a regulatory exemption. The instrument also provides continuity for firms relying on TIGER exemptions. These reforms do not remove safeguards. Firms must continue to meet the conditions for intragroup treatment, and for relevant cross-border exemptions, the Financial Conduct Authority will continue to have visibility through a notification process, while retaining oversight of the regime. In summary, these are proportionate reforms that replace EU exit arrangements with a stable UK framework, reduce unnecessary friction, support firms’ global risk management and maintain robust regulatory oversight. I beg to move.

My Lords, I will address each of these instruments separately. First, on the overseas prudential requirements regime, in the Government’s perspective, this statutory instrument is simply the application of the FSMA model to decisions on equivalence. The Government know that I am quite concerned that the FSMA model removes from parliamentary oversight decisions that were once considered to require democratic engagement and puts them into a model that is notably weak on accountability to Parliament. This is obviously a much bigger issue than this SI.