The UK Financial Services and Markets Bill (“FSMB”) and the accompanying explanatory notes were published on 20 July. The FSMB signals upcoming reforms to the regulatory landscape in the UK financial services sector, including issues and challenges brought about by the adoption of technologies and digital assets.
Regulating Critical third parties
As certain third party service providers are critical to the UK financial services sector, the UK HM Treasury has proposed the introduction regulations that will directly bind these service providers. The proposed regulation would grant regulators wider and more direct power to monitor critical service providers and their impact on the UK finance sector.
Financial markets infrastructure (FMI) sandboxes
The FSMB would allow HM Treasury to introduce financial markets infrastructure (FMI) sandboxes to facilitate the testing of the effectiveness of certain FMI activities, which would further support the digitalization of FMIs and the adoption of new technologies such as distributed ledger technologies. HM Treasury will also be granted the power to introduce bespoke rules on the regulation of payments, including the settlement of crypto assets.
Digital settlement assets
The FSMB further introduces the concept of a digital settlement asset, which means a digital representation of value or rights that: 1) can be used for the settlement of payment obligations; 2) can be transferred, stored or traded electronically; and 3) uses technology supporting the recording or storage of data, including distributed ledger technology.
Measures proposed to support the growth and regulation of digital settlement assets include:
- HM Treasury’s power to establish a FCA authorization regime
- HM Treasury’s power to amend certain FCA or PRA rules to address any conflicting requirements on systemic stablecoin issuers
- A new overarching regulatory regime for stablecoins
The bill has recently undergone a second reading in the UK Parliament and will be further scrutinized by both houses in the Parliament before it can receive Royal Assent and take effect.