Financial Services Bill: Law Date

The Financial Services and Markets Bill was introduced to Parliament on 20 July 2022 and received Royal Assent on 29 June 2023. The bill is currently being scrutinised by Parliament. Once it passes through Parliament, it will become an Act and will enter into law.

Crypto-assets and their providers will be brought under financial services regulation

Crypto-assets have been around for over a decade, but efforts to regulate them have only recently moved to the top of the policy agenda. Crypto-assets are no longer niche products but have a more mainstream presence as speculative investments, hedges against weak currencies, and potential payment instruments. The growth in the market capitalization of crypto assets and their creep into the regulated financial system have led to increased efforts to regulate them.

The UK's Financial Services and Markets Bill, which received Royal Assent on 29 June 2023, introduces a framework for the government to take forward several initiatives, including introducing the ability to regulate crypto-assets and their providers under financial services regulation. The bill also includes measures to ensure the maintenance of access to cash and pave the way for mandatory reimbursement for victims of APP scams.

The bill will implement the findings of HM Treasury's Future Regulatory Framework (FRF) Review, which was launched in light of Brexit and is a once-in-a-generation assessment of the legislative framework in which financial services regulators operate. The bill will also address important issues affecting communities across the country, such as fraud and access to cash.

The regulation of crypto-assets is a challenging task due to the rapidly evolving nature of the crypto world and the lack of standardized terminology to describe the various activities, products, and stakeholders. Additionally, the use of crypto-assets cuts across multiple regulatory domains, including banks, commodities, securities, and payments, each with its own unique framework and objectives.

The global regulatory community has not been idle in its efforts to regulate crypto-assets. Some countries, such as Japan and Switzerland, have amended or introduced new legislation covering crypto-assets, while others, including the European Union, the United Arab Emirates, the United Kingdom, and the United States, are in the drafting stage. However, the resulting fragmented global response has led to a lack of a level playing field and insufficient safeguards to prevent a race to the bottom as crypto actors migrate to jurisdictions with the least regulatory rigor.

A global regulatory framework for crypto-assets is necessary to bring order to the markets, instill consumer confidence, set clear boundaries, and provide a safe space for innovation to continue. The IMF has called for a coordinated, consistent, and comprehensive global response to address the regulatory gaps and ensure a level playing field across jurisdictions.

Buy Now Pay Later products and providers will be regulated

The Financial Services and Markets Bill, which was introduced to Parliament on 20 July 2022, has received Royal Assent as of 29 June 2023. The bill aims to improve regulation, enhance consumer protection, and create a more competitive financial services sector in the UK. One of the key initiatives addressed in the bill is the regulation of Buy Now Pay Later (BNPL) products and providers.

The rapid growth of BNPL products and their increasing popularity, especially during the pandemic, have raised concerns about the potential harm they could cause to consumers. Many consumers do not view BNPL agreements as a form of credit and, therefore, do not apply the same level of scrutiny. Additionally, checks by providers tend to focus on the risk for the firm rather than the affordability for the customer. With the volume of BNPL transactions tripling in 2020, there is a significant risk that consumers could take on unaffordable levels of debt.

To address these concerns, the UK government announced plans to bring BNPL products into the scope of regulation under the Financial Conduct Authority (FCA). This means that BNPL providers will be required to undertake affordability checks on customers and ensure they are treated fairly, especially those who are vulnerable or struggling with repayments. The FCA will have oversight of BNPL providers, and consumers will be able to escalate complaints to the Financial Ombudsman Service if needed.

In Australia, new legislation was passed in November 2024 to regulate BNPL services as credit. BNPL providers will now be managed under the National Credit Code (NCC) and will be subject to additional disclosure obligations, hardship protections, and dispute resolution rights. This legislation aims to provide appropriate and proportionate protections for consumers while maintaining the benefits of access to these credit products.

The regulatory changes for BNPL products and providers aim to strike a balance between consumer protection and preserving the benefits of these financial services. While the specific details may vary by country, the overall goal is to ensure that consumers are adequately protected and informed while using BNPL products.

Victims of APP scams will be reimbursed

The Financial Services and Markets Bill has now become law, receiving Royal Assent on 29 June 2023. The Act provides for a comprehensive "rewiring" of UK financial services regulation, revoking and replacing retained EU financial services law with requirements specifically designed for the UK.

The Act also addresses important issues affecting communities across the country, such as fraud and access to cash. One of the key provisions in the Act relates to the reimbursement of victims of Authorised Push Payment (APP) scams. This provision has been long-awaited and will provide much-needed protection for those who have fallen victim to these types of scams.

Under the new law, the Payment Systems Regulator (PSR) is required to publish a draft requirement for payment service providers to reimburse victims of APP scams carried out using the Faster Payments Scheme. This requirement must be imposed on payment service providers within six months of the provision coming into force. The PSR must also publish a draft of a relevant requirement for reimbursement in other qualifying cases of payment orders that it considers should be eligible for reimbursement.

The Act introduces a mandatory liability framework for the reimbursement of victims of APP fraud, ensuring consumer protections apply consistently. The Payment Systems Regulator is currently consulting on the details of this liability framework. This will provide clarity and certainty for both consumers and the industry on how to handle these types of scams and reimbursement going forward.

The banking and finance industry has been working to protect customers from fraud and to take action against the criminals behind it. Banks have reimbursed millions of pounds to customers since the introduction of the APP voluntary code. With the new law in place, victims of APP scams will now have a clear path to reimbursement and a stronger level of protection.

Regulatory objectives and powers will be enhanced and aligned

The Financial Services and Markets Bill has been described as a "once-in-a-generation opportunity" to improve regulation, enhance consumer protection, and create a more competitive financial services sector in the UK. The Bill received Royal Assent on 29 June 2023 and is now an Act.

One of the key objectives of the Bill is to enhance and align regulatory objectives and powers. This involves strengthening the position of the Financial Conduct Authority (FCA) and giving it greater oversight over financial market infrastructure and critical third parties that provide services to the financial sector.

The Bill introduces a new obligation for UK regulators to keep their rules under general review. If a regulator fails to do so or proposes to review them in a way that the HM Treasury does not deem "appropriate", the Treasury can appoint an independent third party to review the regulator's rules. This gives the Treasury greater control over post-Brexit rule-making by the Prudential Regulation Authority (PRA) and the FCA.

The Bill also assigns a new secondary objective to the FCA and the PRA to facilitate the growth and international competitiveness of the UK economy, particularly in the financial services sector. This objective is designed to foster a more "UK PLC" approach to regulatory obligations, including the development of rules. While some commentators have expressed concerns that this new objective could lead to a dangerous refocusing away from financial stability, it has been framed in a way that ensures the PRA and the FCA do not act inconsistently with their primary objectives, including protecting the stability of the UK financial system.

In addition, the Bill empowers the FCA to make rules for certain "designated activities" connected to the UK's financial markets, exchanges, or financial instruments, products, or investments with a UK connection. This Designated Activities Regime (DAR) enables the FCA to regulate the activity itself and make rules regarding its conduct. The DAR currently includes activities such as entering into derivatives contracts, holding positions in commodity derivatives, short-selling specified financial instruments, and using or contributing to benchmarks.

The Bill also enhances the FCA's and PRA's ability to regulate crypto-assets and their providers. It introduces a new power for the HM Treasury to introduce bespoke rules on the regulation of payments, payment systems, and service providers in relation to payments that include "digital settlement assets". This will provide a clearer regulatory footing for payments technology that relies on distributed ledger technology or other forms of cryptography, supporting the UK as a recognised centre for digital technology in the financial services space.

Overall, the Financial Services and Markets Bill enhances and aligns regulatory objectives and powers by strengthening the position of key regulators, such as the FCA and PRA, and giving them greater oversight and rule-making abilities. It also introduces new obligations and objectives to foster a more competitive and international financial services sector in the UK.

All laws and regulatory requirements stemming from EU measures will be repealed and replaced

The Financial Services and Markets Bill, which received Royal Assent on 29 June 2023, allows for the repeal and replacement of all laws and regulatory requirements stemming from EU measures. This includes any EU-derived legislation that was preserved in the UK's domestic legal framework by the European Union (Withdrawal) Act 2018.

The Retained EU Law (Revocation and Reform) Bill, introduced to Parliament on 22 September 2022, is a key part of the government's commitment to reclaim parliamentary sovereignty and ensure that only regulation suited to the UK remains on the statute book. This Bill ends the special status of retained EU law, allowing for easier amendment, repeal, and replacement. It includes a sunset date by which all remaining retained EU law will be repealed or assimilated into UK law, with a possible extension until 2026 for certain pieces of legislation.

The Financial Services and Markets Bill is a significant piece of legislation that gives the UK the opportunity to enhance its competitiveness in the financial services sector post-Brexit, while maintaining high regulatory standards. It addresses issues such as fraud and access to cash, strengthens the position of regulators, and introduces changes to the framework within which financial services regulators operate.

The repeal and replacement of EU-derived laws will impact a wide range of sectors, including the environment, fisheries, criminal justice, and financial services. For example, the UK has lost access to the EU-wide criminal database, Ecris, which held conviction information on third-country nationals and stateless people. The repeal of EU laws related to "biocidal products" such as disinfectants, wood preservatives, and insect repellents will also occur.

The UK government has committed to lightening the regulatory burden on businesses and spurring economic growth, with the Edinburgh Reforms of UK financial services including over 30 regulatory reforms to unlock investment and boost growth across the country.

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