Briefing note

Financial Services and Markets Bill

Update - 25 November 2022

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.

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.

Timeline

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.

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