As the Financial Services and Markets Act becomes law – here are the 5 things you need to know
The Financial Services and Markets Bill received royal assent yesterday, securing the passage into law of the government’s landmark overhaul of financial services regulation.
The government claims the reforms enable the UK to capitalise on ‘Brexit freedoms’, unlocking billions of pounds which could be directed to investment in the UK.
In short, the act empowers UK regulators to replace and adjust existing EU rules into UK law. The ambition is to turn the UK into a more streamlined and nimble financial services hub.
City minister Andrew Griffith said: “This landmark piece of legislation gives us control of our financial services rulebook, so it supports UK businesses and consumers and drives growth.”
But what are the most important parts for the act?
1. Competitiveness
One of the most significant changes is giving regulators a secondary objective to consider the UK’s international competitiveness when making regulatory decisions.
Many have criticised regulators in recent months for being overly cautious. This has contributed to a sense of the City’s decline in relation to other financial capitals.
The act aims to force regulators to consider the City’s global standing in an attempt to create a more innovative financial sector. The move has been welcomed by many prominent figures in the financial sector.
2. Regulatory accountability
Post-Brexit, the UK’s financial regulators have received a whole range of new powers to interpret EU rules and regulations into UK law. Many of the details of the act’s provisions will end up being worked out by the regulators.
Although the government proposed measures to boost accountability, concerns were raised during the act’s passage through parliament that the measures were insufficient given the range of powers regulators were now receiving.
In response to these concerns the government introduced proposals that will mean regulators give a quarterly review of their performance. New cost benefit analyses panels will also be established inside the regulators which will scrutinise individual decisions.
3. Capital markets
One of the areas where concern over London’s standing has been most acute is in capital markets. A slew of firms have either ruled out a London listing or signalled that they might move from the City’s indexes.
In response to these concerns, the act removes limits on how certain shares are traded. For example, the share trading obligation, which forces investors to trade on certain markets, will be removed while limits on the volume of certain kinds of trading will also be reduced.
As in many cases, the legislation enables regulators to continue reforming the system. The FCA is already consulted on proposals which would simplify the listing regime.
4. Crypto
For the first time in the UK, crypto will be recognised as a regulated financial activity under the act, reflecting the government’s target to make the UK a crypto hub.
The proposals focus on fiat-backed stablecoins in particular, and will eventually allow properly regulated stablecoins to be used as a payment mechanism.
The Treasury is consulting further on the best way to approach crypto regulation, with the main set of regulations expected early next year. The FCA recently set out its approach to crypto marketing, ramping up consumer protections after high profile crypto scandals like the collapse of FTX.
5. Solvency II
Solvency II reforms are one of the areas most highlighted by the government. According to government estimates, the changes, which apply to the insurance sector, will free up around £100bn in extra investment.
The EU’s regulations will be revoked through the act, giving the PRA the ability to make changes to the existing rules.
The first set of proposals for the new Solvency UK regime were announced yesterday by the PRA. It will allow greater flexibility in the calculation of capital requirements and move towards a more principles-based system of assessing firm’s internal models.