The Financial Services and Markets Bill: what made the cut?

The Financial Services and Markets Bill (the Bill), introduced to Parliament last week, implements the Future Regulatory Review that was carried out to look at how the financial services regulatory framework should adapt now the UK is no longer part of the EU. Nadhim Zahawi in his first Mansion House speech as Chancellor of the Exchequer emphasised the clear objective to keep the UK as the most open, inclusive, welcoming, competitive, safe, and transparent place to do financial services business in the world and spoke of a "vision for a sector that is more open, competitive, green, and technologically enabled."

What the Bill doesn't cover

Before looking at what the Bill contains it is worth noting what has not been included. The draft of the Bill that was introduced to Parliament does not include the anticipated 'call-in' powers. These powers would have enabled ministers to intervene in decisions made by regulators in 'the public interest'. While it has not gone this far in terms of governmental oversight or intervention in regulatory decisions, the Bill does include obligations for UK regulators to keep their rules under general review and gives the Treasury the power to appoint an independent third party to review the regulators' rules for them.

What the Bill does cover

Despite being described by the Chancellor as being only part of the government’s financial and professional services agenda, the Bill covers a wide range of regulatory matters. Key inclusions are:

Future Regulatory Framework Review

The Treasury will be given powers to modify or restate retained EU legislation and replace legacy references to EU-derived legislation with "the purpose of making the law clearer or more accessible."

Wholesale Markets Review

The government aims to "improve competitiveness and increase the flexibility of wholesale markets regulation" and through the Bill is implementing a number of changes to the Markets in Financial Instruments Regulations that were identified as part of this Review. One of these changes is to remove the Share Trading Obligation which will allow firms to be able to trade shares on any trading venue in the UK or overseas with any counterparty. The Bill also gives the FCA power to modify or suspend the Derivatives Trading Obligations, subject to Treasury approval. The aim is to prevent or mitigate disruption to markets.

Critical third parties

Again, with the aim of reducing the risk of disruption to the financial services sector, the Treasury will be able to designate, following recommendation from the regulators, certain third parties as ‘critical’. This will give the Bank of England, the PRA and the FCA the ability to directly oversee critical services provided by these critical third parties to regulated firms by way of making rules, gathering information and the ability to take action if those rules or information gathering requests are not complied with.

Crypto assets

The Treasury will be given new powers to introduce rules on the regulation of payments and service providers in relation to 'digital settlement assets', in other words cryptocurrency. This will begin the UK's approach to safely adopting cryptocurrency as a suitable means of payment. Initially the government will regulate 'stablecoins' (excluding utility, security and e-money tokens) although there is the possibility for broader sets of crypto assets such as exchange tokens like Bitcoin to be included in the future. Service providers will be regulated to the same standard as the traditional payment chain. This will be achieved by the amendment of existing electronic money and payment services regulations.

Next steps

Looking ahead, the second reading of the Bill is to take place on the 7^th September 2022.

If you would like to hear more about the Bill or other regulatory hot topics join us for our Regulatory Round Up at our next Brodies Banking & Financial Services Academy on the 14^th of September 2022. To sign up register here.