UK Financial Services and Markets Bill – what it means for technology providers and users in the financial services sector

The UK Financial Services and Markets Bill (“FSMB”) and accompanying notes were published on July 20th. The FSMB signals upcoming reforms to the regulatory landscape in the UK financial services sector, including the issues and challenges posed by the adoption of technology and digital assets.

Regulation of Critical Third Parties

As certain third party service providers are critical to the UK financial services sector, the UK Treasury has proposed the Implementing Rules which will bind those service providers directly. The proposed regulation would give regulators broader and more direct powers to monitor critical service providers and their impact on the UK financial sector.

Financial market infrastructure (FMI) sandboxes.

The FSMB would allow HM Treasury to introduce financial market infrastructure (FMI) sandboxes to facilitate testing of the effectiveness of certain FMI activities, which would further support the digitization of FMIs and the adoption of new technologies such as distributed ledger technologies. HM Treasury will also be given the power to introduce bespoke rules to regulate payments, including the settlement of crypto assets.

Digital settlement assets

The FSMB further introduces the concept of a digital settlement asset, meaning a digital representation of value or rights that: 1) can be used to settle payment obligations; 2) can be transmitted, stored or traded electronically; and 3) uses technologies that support the recording or storage of data, including distributed ledger technology.

Proposed actions to support the growth and regulation of digital settlement assets include:

• HM Treasury’s authority to set up an FCA accreditation scheme
• The power of HM Treasury to amend certain FCA or PRA rules to address conflicting requirements for systemic stablecoin issuers
• A new overarching regulatory regime for stablecoins

Next Steps

The bill recently underwent a second reading in the UK Parliament and will face further scrutiny by both houses of Parliament before it can receive Royal Assent and enter into force.