Financial Services Bill introduced in UK Parliament

The Financial Services Bill was introduced in Parliament on 21 October 2020. According to the UK Government, the Bill is designed to “ensure the UK’s world-leading financial services sector continues to thrive and grasp new opportunities on the global stage”. The Bill contains a broad range of measures that will affect firms across the financial sector, as well as firms seeking to maintain access to the UK after the end of the Brexit transition period on 31 December 2020.

Prudential rules. The Bill contains major reforms to the UK framework for the prudential regulation of credit institutions (that is, banks and building societies) and investment firms. The Bill will implement the so-called “Basel III” standards issued by the Basel Committee on Banking Standards as well as a new investment firms prudential regime.

LIBOR transition. The Bill provides the Financial Conduct Authority (FCA) with powers to help firms transition from the London Inter-Bank Offered Rate (LIBOR) interest rate benchmark to alternative rates. The banks that currently submit their rates to LIBOR have indicated that they intend to cease doing so by the end of 2021, so firms which have LIBOR dependencies are expected to have moved to alternative rates by that date.

Gibraltar. The Bill contains measures designed to ensure continued access between the UK and Gibraltar for financial services firms after the end of the Brexit transition period.

Overseas Funds Regime. The Bill is intended to ensure market access for overseas investment funds to the UK by creating a regime allowing access for recognised collective investment schemes from countries or territories approved by HM Treasury. The Bill also contains a specific regime for the admission of overseas money market funds to the UK.

UK MiFIR. The Bill updates the UK onshored version of the Markets in Financial Instruments Regulation (UK MiFIR) to reflect changes to the UK’s framework for cross-border access by overseas firms to the UK market, which will require the assessment of third country equivalence by HM Treasury.

De-authorisation. The Bill provides for a streamlined, simpler process to allow the FCA to remove firms from the FCA register. This follows concerns that the details of inactive firms on the register have been exploited to trick unsuspecting customers, so the FCA has prioritised the need to remove inactive firms from the register more quickly.

Insider dealing and market abuse. The Bill includes amendments intended to clarify firms’ obligations under the UK version of the Market Abuse Regulation (UK MAR) in relation to insider information, insider lists and transactions with senior managers. The Bill also increases the maximum criminal sentence for market abuse, and extends the reach of UK anti-money laundering rules to overseas trustees.

Debt respite scheme. The Bill provides powers for the implementation of the statutory debt repayment scheme (SDRP). This allows people with problem debt to make arrangements with their creditors on the amount and timing of repayment. The SDRP is the second part of the UK Government’s plan to help individuals with problem debt, following the “breathing space” scheme which is due to take effect in UK law in May 2021.

Help to save. The Bill provides powers for a regime to create successor accounts for the existing help-to-save regime. This is intended to encourage saving by individuals with low incomes.

PRIIPs. The Bill contains measures intended to improve the functioning of the UK onshored Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation. In particular, the amendments are intended to clarify the scope of the PRIIPs Regulation and reduce uncertainty regarding its application.

OTC derivatives. The Bill contains amendments to the European Market Infrastructure Regulation (EMIR) to improve access to clearing services, especially for smaller firms. It will require firms offering clearing services to do so in accordance with fair, reasonable, non-discriminatory and transparent terms. The FCA will have powers to make rules setting out the grounds on which commercial terms will meet this obligation.

Financial collateral. The Bill is intended to ensure that the Financial Collateral Arrangement (No.2) Regulations 2003 are fully valid and effective. This follows concerns raised during litigation that the UK Government may have gone beyond its powers when transposing requirements related to financial collateral arrangements into UK law in 2003.

FCA chief executive. The Bill specifies a statutory limit on the length of period that the chief executive of the FCA may remain in office. This brings the appointment in line with other posts, such as deputy governors of the Bank of England, whose appointment is subject to statutory term limits.

Next steps

Following its introduction to Parliament, the Bill will be subject to legislative scrutiny in the House of Commons and the House of Lords. Once both Houses have agreed, the Bill will receive Royal Assent and become law.

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