Described by the Chancellor as a “landmark piece of legislation”, the much awaited Financial Services and Markets Bill was introduced to Parliament on 20 July 2022. Through amendments to existing financial services legislation including the Financial Services and Markets Act 2000 (FSMA), the Banking Act 2009 and the Financial Services (Banking Reform) Act 2013, the Bill will make significant changes to how financial services are regulated in the UK.
The Bill will:
- Revoke retained EU law relating to financial services and markets, reflecting one of the key outcomes of the Future Regulatory Framework Review (FRF Review) undertaken by HM Treasury (HMT). Schedule 1 to the Bill contains a list of all the retained EU law broken down according to the type of enactment. Retained EU law will be transferred to the rulebooks of the regulators (the FCA and the PRA) or to legislation, as appropriate. The Bill will commence the revocation of retained EU law in a way that enables a smooth transition to a comprehensive FSMA model. This means the government does not expect to commence the revocation of individual parts of the Schedule unless the regulators have drafted and consulted on rules that are ready to be enforced.
- Reform the regulation of wholesale capital markets by changes to the UK MiFID framework, which implement the priority areas identified in the government’s Wholesale Markets Review, and to UK EMIR.
- Create a “designated activities regime”, which will provide a framework for the regulation of activities related to financial markets that are regulated by retained EU law but are not FSMA regulated activities.
- Enable HMT to designate certain third parties as “critical” and provide the Bank of England, PRA and FCA with rule making powers in respect of the provision by such parties of services to authorised firms, service providers and financial market infrastructures.
- Amend the financial promotion restriction in section 21 of FSMA so that authorised firms will need to pass through a regulatory “gateway” and obtain permission from the FCA before they are able to approve the financial promotions of unauthorised firms.
- Bring activities that facilitate the use of certain stablecoins, where they are used as a means of payment, into the UK regulatory perimeter. This will be done largely by amendments to the electronic money and payment systems regulatory frameworks.
- Add a new competitiveness and growth objective to the objectives of the FCA and PRA, reflecting another conclusion of the FRF Review. This will be a secondary objective and will require the regulators to facilitate the international competitiveness of the UK’s economy (including in particular the financial services sector) and its growth in the medium to long term.
- Add a new regulatory principle for the FCA and PRA, which will require them to have regard to the need to contribute towards achieving compliance with section 1 of the Climate Change Act 2008 (the government’s net zero commitment) when discharging their general functions.
- Protect access to cash by ensuring the continued provision of cash withdrawal and deposit facilities.
- Correct a legislative barrier in the Payment Services Regulations 2017 that currently prevents the Payment Systems Regulator from using its powers to implement a mandatory reimbursement for victims of “authorised push payment” scams.
- Make a number of reforms to how the regulators are held accountable. These include a requirement for each regulator to keep their rules under review and to review their rules where HMT considers it is in the public interest, a new power for HMT to specify matters that the regulators must have regard to when making rules in a particular area, a requirement to respond annually to HMT’s recommendations and to notify the Treasury Select Committee when publishing a consultation on any matter. In his Mansion House speech previewing the Bill, the Chancellor said that further powers to intervene in financial regulation would not be in the Bill as the government needs more time to consider the issue.
The second reading of the Bill is timetabled to take place on 7 September 2022. If the Bill follows a similar timescale to the Financial Services Bill 2019-21, then we can expect it to take at least six months from introduction to receive the Royal Assent.