On 21 October 2020, the UK Government published the Financial Services Bill (the Bill).
The Bill was introduced to the House of Commons and given its First Reading that day. First Reading stage is a formal stage where no debate takes place. MPs will next consider the Bill at Second Reading. The date for Second Reading has not yet been announced.
The Bill was first announced by the UK Government during the 2019-21 Parliamentary session in the December 2019 Queen’s Speech. Following that HM Treasury published certain consultation papers and other policy documents containing details of the key reforms that the UK Government intended to include in the Bill. These included a:
- Consultation setting out proposals to introduce new market access arrangements for financial services between the UK and Gibraltar.
- Consultation setting out the UK Government’s proposal for a new process for allowing investment funds domiciled overseas to be sold to UK investors.
- Policy Statement confirming the UK Government’s intention to implement the internationally agreed Basel III banking standards in the UK followed by a further policy update.
In addition, when the Financial Services Bill was published, HM Treasury published a Policy Statement concerning amendments to the Benchmarks Regulation to support LIBOR transition.
Purpose of the Bill
The Explanatory Notes to the Bill explain that the Bill’s purpose is to:
- Ensure the UK’s regulatory framework continues to function effectively for the UK after leaving the EU.
- Enhance the UK’s world-leading prudential standards and promote financial stability by enabling the implementation of the full set of Basel III standards, a new prudential regime for investment firms, and giving the FCA the powers it needs to oversee an orderly transition away from the LIBOR benchmark.
- Promote openness between the UK and international markets by introducing a new mechanism to simplify the process whereby overseas investment funds can be marketed in the UK and delivers a Ministerial commitment to provide long-term access between the UK and Gibraltar for financial services firms.
- Introduce a number of measures to maintain the effectiveness of the financial services’ regulatory framework and sound capital markets.
Summary of the measures in the Bill
In summary, the measures in the Bill are:
Enhance the UK’s world-leading prudential standards and promote financial stability
- Implementing the remaining Basel 3 standards: This measure will enable updates to the prudential regulatory regime to implement the remaining Basel 3 banking standards.
- Investment Firms’ Prudential Regime (IFPR): This measure will enable the implementation of a more proportionate prudential framework for the regulation of investment firms.
- LIBOR transition: This measure will clarify and extend the FCA’s set of powers to ensure the orderly wind-down of the critical LIBOR benchmark.
- Benchmarks: extension of third- country transitional period: This measure will extend the transitional period for third-country benchmarks from end-2022 to end-2025, avoiding financial stability risks and economic repercussions for UK users should they lose access.
Promote openness between the UK and overseas markets
- Overseas Funds Regime: This measure will introduce new equivalence regimes for retail investment funds and money market funds, which will simplify the process for investment funds that are domiciled overseas to market to UK consumers.
- Gibraltar Authorisation Regime: This measure will deliver long-term market access between the UK and Gibraltar for financial services firms on the basis of alignment and cooperation, now that the UK and Gibraltar have left the EU.
- Markets in Financial Instruments Regulation (MiFIR): This measure updates the regime which regulates the services and activities of third-country firms in the UK, following an equivalence decision. This will ensure the FCA has an appropriate degree of oversight over firms that could register under the regime.
Maintain the effectiveness of the FS regulatory framework and sound capital markets
- Amending the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation: This measure will improve the functioning of the onshored PRIIPs Regulation by enabling the FCA to make clarificatory rules regarding the scope of the Regulation and removing reference to performance scenarios. It will also enable HMT to further extend the exemption currently in place for Undertakings for the Collective Investment in Transferable Securities (UCITS) funds.
- Amendments to the Market Abuse Regulation: This measure will make two amendments to the Market Abuse Regulation to bolster the effectiveness of the regime while reducing some of the administrative burden on issuers.
- Extending the criminal penalties for market abuse: This measure increases the maximum prison sentence for market abuse from 7 to 10 years in line with other sentences for financial crimes, as recommended by the 2015 Fair and Effective Markets Review.
- Increasing beneficial ownership transparency for Trusts: This will clarify the Government’s ability to enforce and make changes to extra-territorial trust registration powers.
- Completing the implementation of European Market Infrastructure Regulation (EMIR REFIT): This measure will ensure that clearing members and clients that offer clearing services do so on a fair, reasonable, non-discriminatory and transparent (FRANDT) basis. This measure will also improve trade repository data quality and make it easier for firms to move from one trade repository to another.
- Amendments to the Banking Act in relation to the Financial Collateral Arrangement Regulations: This measure will ensure the Financial Collateral Arrangement Regulations stand on a sound statutory footing providing certainty to markets.
- Cancellation of the authorisation of firms: The measure will streamline the FCA’s process for removing a firm’s authorisation and taking them off the public register, to improve accuracy and reduce the risk of fraud.
- Term of the FCA Chief Executive: This measure legislates to make the appointment of the FCA CEO subject to a fixed, once renewable, 5-year term – in line with previous government commitments to the Treasury Select Committee.
- Statutory Debt Repayment Plan (SDRP): This measure builds on existing legislation to enable the Government to impose SDRPs on creditors and to provide for a charging mechanism by which creditors will contribute to the funding of the Breathing Space Scheme (both Breathing Space and the SDRP).
- Help to Save Successor Accounts: This measure means when a Help to Save account matures and the account holder has not transferred it elsewhere, the balance can be transferred into a standard NS&I savings account automatically, keeping the funds safe and in a savings account until the owner decides what they want to do with the money.
The measures in the Bill are further discussed in the Explanatory Notes.
Further detailed commentary
We will provide further detailed commentary on the Bill at a later date.