Update – 29 June 2023 – Financial Service and Markets Bill receives Royal AssentThe Financial Service and Markets Bill received Royal Assent on 29 June 2023. The bill, first introduced in May 2022, will implement the outcomes of the Future Regulatory Framework review by repealing retained EU law relating to financial services and establish a regime to regulate stablecoins, a type of cryptoasset, and protect access to cash.
Key developments since the Bill’s original drafting
All of our previous updates are located at the bottom of this briefing note.
Financial Services and Markets Bill
17 August 2022
After months of discussion and debate, the landmark Financial Services and Markets Bill (the Bill) was finally introduced to UK Parliament on 20 July 2022 - the last piece of legislation under the Johnson Government.
The Bill is designed to give the UK the chance to create a more competitive financial services sector post-Brexit. It repeals the financial services framework inherited from the EU, offering regulators vast new powers to reform EU rules, while establishing a new secondary objective for regulators to promote "economic growth and international competitiveness".
The Bill includes several proposals set out in the HM Treasury’s Future of Regulatory Framework (FRF) Review – the consultation having closed in February 2022. The Review was established to reflect on the UK’s position outside of the EU. Delivering the outcomes of the Review is central to the government’s vision for an open, green and technologically advanced financial services sector that is globally competitive, while protecting UK citizens.
Purpose of the Bill
The briefing pack accompanying the 2022 Queen’s Speech states that one of the main aims of the Bill is to: “seize the benefits of Brexit, by establishing a coherent, agile and internationally respected approach to financial services regulation that best suits the interests of the UK”.
Financial services should, therefore, be prepared for the UK to diverge from the current framework, meaning adaptation to and negotiation of new rules and regulations, as well as associated risks. The recently published consultation on the proposed reforms to Solvency II is a strong indication that divergence from existing EU regulations will happen, although to what extent to which is still unclear.
Key measures of the Bill
The derived outcomes of the Bill is to:
- Introduce a regulatory principle to have regard to the government’s Net Zero target, as set out in law.
- Ensure the FCA and PRA take on a new secondary objective for medium to long-term growth and international competitiveness.
- Introduce regulatory principles for the Bank of England, including a sustainable growth principle.
- Enable HM Treasury to make modifications in relation to protecting consumers and insurance policy holders, or those who may become policy holders.
- Provide UK courts with the power to reverse a write-down if an insurer’s financial position improves, and it is deemed able to pay a greater proportion of its debt.
What’s not in the Bill
- The Bill does not include specific detail relating to reform of the Solvency II regime.
- Government plans to introduce a wide-ranging regulatory regime over other crypto assets are not included in this legislation.
- Proposed ‘call-in’ powers providing the government with the power to ‘call-in’ regulatory decisions made by the Bank of England have not been included.
The Bill was introduced to the House of Commons on 20 July 2022 and is expected to make its way through the House of Commons by late 2022.
However, with both Conservative leadership candidates, Lis Truss and Rishi Sunak openly committing to add the ‘call in’ powers to the Bill, allowing ministers to overrule decisions made by financial regulators, tensions are running high with the Bank of England. Commentators have raised questions as to whether such a proposal would ultimately undermine the UK’s competitive and independence of its regulators. Moving forward, this Bill may indeed become one of the most controversial Bills announced as part of the Queen’s Speech.
22 May 2023 - Bill completes Committee Stage
The Financial Services and Markets Bill finally completed House of Lords Committee Stage on 23 March and is now awaiting Report Stage - scheduled to take place from 6 June.
Central to Peers’ complaints has been the lack of mechanisms for accountability of regulators. To combat this, Lords have proposed a range of new scrutiny mechanisms, including a new Office for Financial Regulatory Accountability that would follow a similar model of governance to the Office for Budget Responsibility. Other areas include frustrations on the lack of new green finance measures, like a statutory ‘Net Zero’ objective for regulators. Current provisions in the Bill formalise the regulators’ duty to act in line with the Government’s Net Zero target, but do not make it a statutory objective. The contentious issue of access to cash and in-person banking services has also been in focus.
It now remains to be seen which amendments will be re-tabled when it returns to the House of Lords.
25 November 2022 - Government scraps call-in powers proposals
On 24 November 2022, the UK Government announced that they would withdraw the proposed call-in powers from the Bill. The proposed powers were highly contentious, as they would have provided the government with the ability to intervene with the financial regulators’ decision making processes, if deemed necessary. The change of position removes a significant obstacle as the Bill progresses through its legislative journey, and is perhaps indicative of the Prime Minister’s relationship and approach towards the financial regulators, given his background.
18 November 2022 - Chancellor confirms Solvency II plans in his Autumn Statement
Committee stage concluded on 3 November, with the Financial Services and Markets Bill (the Bill) now moving the Report stage where the government will be asked to clarify its position on the proposed call-in powers. A date for the Report stage is yet to be set.
On 17 November, the government published its response to the Treasury’s Solvency II consultation confirming that they would ‘legislate as necessary’ to implement the new ‘Solvency UK’ regime. This proposal was backed by Chancellor Jeremy Hunt in his Autumn Statement and the amendments to enshrine these reforms into law will be tabled at the Report stage.
28 October 2022 - Line-by-line scrutiny of the Bill continues
On 27 October, the Financial Services and Markets Bill (the Bill) Committee met to consider the Bill and some of the amendments that have been tabled so far. These include the formal introduction of provisions relating to the repeal and replacement of retained EU law, the Designated Activities Regime (DAR), crypto assets, FMI sandboxes, critical third parties (CTPs) and financial promotions.
Financial Secretary to the Treasury Andrew Griffith sought to reiterate the government’s respect for the independence of the regulators and the Bank of England, and that the Treasury’s new ‘call-in powers’ would be used sparingly.
Line-by-line scrutiny of the Bill will continue until the end of the committee stage on 3 November 2022. The Bill will then enter the Report Stage where the government will be asked to clarify its wording on the proposed call-in powers.