So Long And Thanks For All The…Regulations? A Look At The Key Points Proposed In The Financial Services and Markets Bill

Brexit may be in the not-so-distant past; however, its effects are still being felt. One of the key areas that was left languishing without clarity was the financial services sector. Arguably one of the most significant sectors of the economy for the UK and third largest in the Organisation for Economic Co-Operation and Development, contributing around £165 billion (8.6%) to the UK economy.

On the 20 July, following a speech at Manion House by the Chancellor of the Exchequer, the Financial Services and Markets Bill (“FSM” or “the Bill”) was introduced to Parliament. It is quite possibly the most critical piece of legislation since the original Financial Services and Markets Act that brought about the then Financial Services Authority.

Whilst only a Bill at present and the first reading done just before the summer recess, with areas subject to change and challenge depending on its passage through the Houses, it is designed to implement the outcomes of the Future Regulatory Framework Review (“FRF”), harness innovative technologies, promote financial inclusion, bolster competitiveness of the UK markets and maintain the UK’s pre-eminent position as an open and global financial hub.

There are several areas of interest within the Bill, and I cover some of the more significant (or interesting) ones below.

Some Key Areas

Solvency II Reform

Designed to enable the UK to move towards a “Solvency UK” regime that more appropriately fits the UK insurance sector, increasing the range of assets available for the “matching adjustment” but more generally to reduce a range EU-derived reporting, administrative, and other regulatory requirements.

FRF Implementation

Changes including the revocation of onshored EU regulation; delegating further rule making power to UK regulators; adding a secondary objective to the FCA and PRA to facilitate competitiveness; introduction of a Designated Activities Regime and proportionate regulation of EU law activities and increased accountability of the regulators.

Wholesale Markets Review

Amendments to the regimes for trading venues and systematic internalisers, removal of the double volume cap and share trading obligation of the equity markets as well as more proposals for the fixed income, derivatives, and commodity derivatives markets and (as already seen in some respects) market data and reporting requirements.

Financial Promotions Rules

An amendment to Section 21 of FSMA 2000 whereby only those persons who have applied for and been given permission by the FCA will be permitted to approve financial promotions for unauthorised persons for the purposes of that section.

Cryptoassets

Section 22 of the Bill contains a new power for HM Treasury to introduce bespoke rules on the regulation of payments, payment systems and service providers in relation to the payments that include “digital settlement assets”, which includes any digital representation of value or rights, whether or not cryptographically secured. This theoretically will allow certain types of stablecoin (as opposed to bitcoin) to become a regulated form of payment, making their use more commonplace and setting the UK as one of the leaders in the cryptoasset space.

Critical Third Parties (“CTPs”)

The Bill gives HM Treasury, the FCA and the PRA powers to make rules to mitigate risks from critical third parties to the financial sector. The proposals are aimed at addressing the risks posed by a concentration in the provision of critical services by one third party to multiple firms. The proposed regime will allow the regulators to oversee material services that CTPs provide to firms. In particular, the FCA, PRA and the Bank of England will be able to make rules relating to the provision of material services by CTPs; gather relevant information directly from CTPs; and have a suite of statutory powers over CTPs (including the power to direct CTPs from taking or refraining from taking specific actions).

A CTP will only be such if HM Treasury believes that should there be a failure or disruption in the provision of services by the CTP this will cause a threat to the stability or confidence in the UK financial system.

What Next?

The Bill has only had its first reading in the House of Commons, with the second one due on 7 September when Parliament reconvenes. There are a number of key and promising changes proposed, but the Bill has some distance yet to travel before it is given Royal Assent and enacted into law. Anything could happen by way of amendments over the coming periods, and it will be interesting to see what we end up with at the end, however, we remain hopeful that the UK will both maintain its competitive edge and its place as the leading global financial services hub.

About Complyport

Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.

Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Our clients tell us we live our values; we are driven, agile and collaborative.

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