On 19 December 2023, the Financial Services and Markets Act 2023 (Benchmarks and Capital Requirements) (Amendment) Regulations 2023 (SI 2023/1409) (the Regulations) were published, along with an explanatory memorandum.
The Financial Services and Markets Act 2023 (FSMA 2023) repeals retained EU law (REUL) relating to financial services, to enable the Government to deliver its Smarter Regulatory Framework for financial services. That REUL will be repealed and replaced with rules set by the financial services regulators, operating within a framework set by Government and Parliament.
Each piece of REUL related to financial services is now within a “transitional period”, lasting until the repeal of each piece is individually commenced by HM Treasury. The Regulations make targeted modifications to specific provisions of REUL to ensure that it continues to function effectively before the repeal of the relevant pieces of REUL have been fully commenced.
This includes amendments to:
- Reintroduce a “discount factor” which was unintentionally removed from the Capital Requirements Regulation in both the UK and the EU. The discount factor reduces the amount of capital small- and medium-sized firms hold for their trading and derivative activities. Reintroducing the discount factor is intended to align UK legislation with relevant international standards and ensure that UK firms remain competitive compared to those based in other jurisdictions.
- Extend the transitional period for the third country benchmarks regime under the Benchmarks Regulation from 31 December 2025 to 31 December 2030. The regime stipulates that only third country benchmarks approved for use via one of the prescribed routes set out in the Benchmarks Regulation may continue to be used within the UK. This third country regime does not apply for the duration of the transitional period. The extension is intended to ensure that firms do not lose access to non-UK benchmarks that are critical to their operations and provide time for the Government to consider where reforms are needed to the third country benchmarks regime.
The Regulations come into force on 19 December 2023, except the changes to the Benchmarks Regulation which come into force on 1 January 2024.