Future Regulatory Framework

The Bill implements the outcomes of the Future Regulatory Framework Review. The overarching aim of this measure is to ensure retained EU law will move to UK regulators’ rulebooks enabling them to act with greater speed and agility. In addition, the Bill affords the FCA and PRA a new secondary objective: to facilitate growth and competitiveness.

There has been some debate over whether pursuing international competitiveness might promote the lowering of standards or ‘light-touch regulation’, however others have argued such a secondary objective will ensure the UK’s financial services sector are globally competitive. What remains to be seen is how this new objective will be implemented, monitored and ultimately interplay with the FCA and PRAs primary objectives of promoting financial stability and consumer protection.

Supporting Financial Inclusion

The Bill also introduces a number of measures that support financial inclusion.

These include:

1. Providing a legislative framework to protect access to cash for those that need it, with the FCA as the lead regulator.
2. Secondly, given the proliferation of financial scams since the start of the pandemic (in the year to June 2021 fraud was committed at least 5 million times), the Government has focused on addressing Authorised Push Payment (APP) fraud in its Bill. This will enable regulators to require that victims of push payment scams are reimbursed, and that consumer protections are applied consistently.
3. Thirdly, the Bill enables Credit Unions to offer more products, beyond primarily savings accounts and loans to now include hire purchase and conditional sale agreements – with the Bill giving the Government the power to add further services to the Credit Unions Act; and
4. Fourthly, the Bill introduces a regulatory ‘gateway’ designed to improve the quality of financial promotions. This means regulated firms must pass through this before being able to approve the financial promotions of unauthorised firms, giving the FCA greater oversight of the approval of financial promotions.

Taken together these will make a measurable difference to the most financially vulnerable in society. However, as some commentators have long argued broader problems of financial exclusion continue to exist, with some calling for a longer-term solution to the problem such as giving regulators a statutory objective to promote financial inclusion.

The Regulation of Stablecoins

Finally, the Bill brings activities facilitating the use of certain stablecoins, where used as a means of payment, into the regulatory perimeter by amending existing e-money regulations. The Bill introduces a new definition of “digital settlement asset”, giving HM Treasury the power to amend this definition to account for future changes.

It is clear the Government’s staged approach to the wider regulation of digital assets, in starting with stablecoins, recognises that such tokens already share characteristics with existing forms of e-money. However, it should be noted that the Government intends to launch a consultation on its regulatory approach to wider crypto-assets, including those used as a means of investment later in 2022.

The Financial Services and Markets Bill represents the latest development in a rapidly shifting policy and regulatory landscape for the UK’s FinTech sector. Amidst the current political and economic turmoil policymakers will continue their efforts to ensure innovation in financial services do not come at the expense of consumer protection. Indeed, with the introduction of the Data Protection and Digital Information Bill; the PSR’s ongoing market reviews into card payment and interchange fees, and the Treasury Select Committee’s inquiry into the Crypto-asset industry – policymakers remain keen to understand where the UK can improve its rulemaking, whilst continuing to support the UK’s FinTech sector.

To explore the implications of these measures, and how they will continue to shape the future of the UK’s FinTech sector, please contact Sameer Gulati, Director, Financial Services.