Financial Services and Markets Bill becomes FSMA 2023… Now what?

The Financial Services and Markets Bill has received Royal Assent, completing a near year-long journey through Parliament. Now attention turns to how – and when – the government and regulators will use the extensive powers they have been given under the Act to reform the UK’s financial services framework.

What’s changed?

We have been tracking the progress of the Bill, including changes which pave the way for cryptoasset regulation and the eventual decision not to give the government the right to call in regulators’ decisions.

Recent changes to the Bill have included:

• Adding the UK’s environmental targets to the FCA, PRA and PSR’s regulatory principles so that the regulators have regard to these when performing their general functions, in addition to considering the UK’s net zero emissions targets
• Requiring the Treasury to carry out a review to assess the adequacy of the UK financial system for tackling the financing of illegal deforestation
• Allowing the Treasury to issue a policy statement on sustainability disclosure requirements to which the FCA and PRA must have regard when making rules or issuing guidance on this topic
• Requiring the Treasury to adjust the anti-money laundering regime so that the starting point for assessing domestic politically exposed persons is that they present a lower level of AML risk than overseas PEPs
• Extending the run-off regime for third country central counterparties

A separate proposal to add financial inclusion within the FCA’s consumer protection objective was not included in the final version of the Act.

What happens now?

Some aspects of the Bill start to apply immediately, such as the extension of the CCP run-off regime. Most provisions in the Bill, however, do not start to apply either until two months after Royal Assent (ie end-August 2023) or on such day as appointed by the Treasury by regulations. Critically, the latter includes the repeal of retained EU law relating to financial services which is listed in Schedule 1 to the Act. We expect the Treasury to give more detail on its indicative timetable for the repeal of this law as part of its “lift and shift” programme.

The enactment of the Bill also unlocks several strands of policymaking. For example, we can now expect imminent developments on the FMI sandbox, the regulation of stablecoins used as a means of payment, the creation of a critical third party regime and the extension of the Senior Managers and Certification Regime to CCPs and CSDs.