The second reading of the Financial Services and Markets Bill

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A vision to promote competition, innovation and growth but does it go far enough on financial inclusion, the environment and the role of regulators?

I have written before on the Financial Services and Markets Bill – an extremely important bill currently before Parliament. The bill is expected to usher in the biggest change to financial services in a generation.

This is a substantial bill, comprised of 20 separate measures and over 335 pages, that comes after several Treasury consultations and years of dialogue with the City and trade bodies that represent the service industry. financial.

The bill received second reading in the House of Commons on September 7, the first opportunity for a substantive parliamentary debate on the new legislative proposals.

This bill will bring stablecoins into payments legislation. Greater regulatory clarity around stablecoins can only be a good thing, providing better conditions for issuers and service providers to operate and grow in the UK.

Economic Secretary to the Treasury, Richard Fuller MP, opened the debate by saying: “The Bill has a single vision: to adapt financial services regulation to UK needs, promote global competitiveness and innovation and contribute to the growth of our economy. ”

He also set out five objectives of the bill: to implement the results of the Future Regulatory Framework (FRF) review, to strengthen the competitiveness of UK markets, to promote UK leadership in global financial services trade, to exploit opportunities for innovative technologies in financial services and promote financial inclusion and consumer protection.

This original aim, to establish the FRF and ‘sweep away EU regulations’ has been characterized by some as a key Brexit opportunity, and described by MP Rt Hon Rishi Sunak during the debate as a bill which ‘delivers on “what Brexit was all about.”

The FRF proposals are based on the model of regulation introduced by the Financial Services and Markets Act 2000 (FSMA) which delegates standard setting to independent regulators working within an overarching policy framework set by Government and Parliament . This model intends to maintain a “coherent, agile and internationally respected approach” and was recalled by the Economic Secretary to the Treasury during the debate:

“Schedule 1 contains more than 200 instruments that will be repealed directly by the bill. While in some cases these rules can simply be removed, in many areas there is a need to replace them with the appropriate rules for the UK, in our own national regulations. These instruments will therefore cease to have effect when the secondary legislation and the regulatory rules necessary to replace them have been put in place.

We were fortunate during the debate to benefit from the contributions, not only of the former Chancellor of the Exchequer, but also of the former Economic Secretary to the Treasury, John Glen MP, who had held the position for four and a half years and played an absolutely essential role in the development of this bill.

Commenting on the FRF, he pointed out: We do not seek to deviate from the standards of other jurisdictions; what we’re trying to do is adapt those rules to the UK.

The current Treasury Economics Secretary also underlined: “The bill also proposes… the most urgent reforms to the Markets in Financial Instruments Directive (MIFID) framework, as identified during the review of wholesale markets. It will remove ill-conceived and cumbersome rules, such as the double volume cap and the stock trading requirement, which will allow companies to access the most liquid markets and reduce costs for end investors.

He also underlined: “For the first time, the Prudential Regulatory Authority and the Financial Conduct Authority will be assigned new secondary objectives, as set out in Article 24, to facilitate growth and international competitiveness.”

The articles of the bill dealing with crypto-assets and stablecoins are article 21 and schedule 6. This part of the bill will be,
“Extend existing payments legislation to include payment systems and service providers that use digital settlement assets that include forms of crypto-assets used for payments, such as stablecoins, backed by fiat currency. This places these payment systems within the regulatory remit of the Bank of England and the payment systems regulator, enabling their oversight for financial stability, promoting competition and encouraging of innovation.

“To foster innovation, Clauses 13-17 and Schedule 4 allow for the delivery of a financial markets infrastructure sandbox by next year, enabling companies to test the use of technologies and new and potentially transformative practices that underpin financial markets, such as distributed ledger technology. ”

The last of the five objectives, promoting financial inclusion and consumer protection, is covered by section 47 and schedule 8 of the bill. The minister drew attention to an amendment I tabled to the old Financial Services Act that allows for redemption without purchase. This bill goes further in protecting access to cash and will give the FCA “responsibility for ensuring reasonable access to cash across the UK”.

Second reading is an important stage in the legislative process during which MPs can identify areas of concern and seek clarification on particular issues. Despite warm words and generally widespread support from across the House, this final part of the bill dealing with financial inclusion raised the majority of questions and concerns. Several MPs focused on the issue of access to cash, seeking reassurance that access to cash would be free, that “reasonable access” would be carefully defined to cover distance, accessibility, include face-to-face banking and also consider cash acceptance and cash infrastructure.

Unfortunately, the Minister was unable to reassure the Chamber: “When I say ‘access to cash’, I mean access to cash. My honorable friend raises the question of whether this access should be free; this is a matter to which we will return in committee, but I cannot give him that assurance at this stage.

My colleagues have also raised the issue of Buy Now Pay Later (BNPL), the terrible situation facing “mortgage prisoners”, people trapped in high cost mortgages, the need for more affordable credit and the question whether the FCA should have a financial inclusion obligation. I have spent years campaigning to improve financial inclusion and have raised
many of the same issues in Parliament.

Powerful arguments have also been made about the environment. MP Caroline Lucas underlined: “The Bill contains a new statutory objective on competitiveness and growth, which puts these elements above the legally binding nature and climate objectives of the United Kingdom. Given that a thriving economy depends on a thriving environment, will the minister revisit the issue and also consider introducing a specific climate and nature legislative objective…? »

She went on to point out that we have “a real opportunity to be a green competitive financial centre”.

These are familiar arguments, similar to those that I and my colleagues have made in the
Debates over the UK Infrastructure Banking Bill recently, when we pushed the government to be absolutely clear on how it would ensure the bank invested in infrastructure that will help fight climate change and support economic growth.

Concerns have been raised about regulators, particularly regarding power, accountability and capacity. In terms of accountability, questions have been raised about whether Henry VIII’s powers – the transfer of power from Parliament to the executive (in this case, regulators and the Treasury) would lead to a lack of accountability appropriate for Parliament – ​​MP Angela Eagle expressed concern “that a lot of extra powers will be given to regulators and the Treasury.

MP John McDonnell has been the most critical of the FCA, declaring that the FCA has been a “catastrophic failure”. He also pointed out that “40 bodies regulate our financial sector in one way or another and there is a need to consolidate it and learn from the lessons learned so far”.

Other concerns included greater action to prevent scams and improve fraud protection; for example, MP Damien Hinds’ suggestion that pushes payment scams and automatic reimbursement should expand beyond banks to social media companies and tech companies.

Another bill just released – the Economic Crime and Corporate Transparency Bill – is designed to help tackle fraud and other financial crimes through information sharing reforms. and the extension of powers to combat economic crime. The bill proposes new intelligence-gathering powers for law enforcement, reforms to Companies House and rules relating to limited liability companies, as well as additional powers to seize crypto-assets.

The day after the debate, the House of Commons Public Bills Committee issued a
ask for written evidence. If you have relevant expertise and experience or a particular interest in the Financial Services and Markets Bill, I urge you to be part of this process and write. This Bill offers an ambitious and much-needed package of reforms that have the potential to assert the UK’s global leadership in financial services and be absolutely transformative for citizens, businesses and UK Plc.

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