Three surprises in the Financial Services and Markets Bill

For those of you about to enjoy a summer break, the Treasury has kindly provided some holiday reading. The Financial Services and Markets Bill was released just before the Parliamentary recess. Its 335 pages cover a range of topics, pulling together various strands of HM Treasury’s post-Brexit policy work. Even though much of the policy direction was known ahead of time, the Bill still contains a few surprises.

Sweeping powers leave the Treasury holding all the cards

The government’s future regulatory framework proposals signalled a return to a “FSMA model” of regulation where regulators are responsible for setting rules within parameters set by legislation. The aim is to enable more flexible regulation which can respond quicker to market developments. What might surprise some is the extent to which the Bill sets up the government to make that legislation with limited further Parliamentary scrutiny.

For example, the Treasury may, by regulations, modify financial services law for broadly defined purposes, create a regulatory regime for cryptoassets, and implement mutual recognition agreements. Much of the Bill itself is also subject to the Treasury making regulations to bring it into force.

You won’t find stablecoins mentioned in the Bill

Despite trailing that the Bill would bring stablecoins into the regulatory perimeter, the Bill itself does not use the term “stablecoin” and only mentions crypto, well, cryptically. This is because the Bill introduces a new concept to UK law: “digital settlement asset”. This concept is intended to bring stablecoins into the scope of regulation but it is drafted widely enough that it could cover other digital assets as well. This broad definition anticipates a consultation on regulating wider aspects of the crypto sector.

The Bill also does not automatically regulate digital settlement assets but allows the Treasury to do so. Its powers under the Bill extend to amending the definition of “digital settlement asset” itself.

All quiet on the ESG front

There are some ongoing policy workstreams which the Bill, in its current form, does not cover. These include sustainability disclosure requirements (on which the FCA is planning to consult in the autumn) and the UK’s overseas regime, including the OPE.

Read our summary of the Financial Services and Markets Bill.