Since its inclusion in the Queen’s Speech on May 11, 2022, many of us have been awaiting the arrival of the Financial Services and Markets Bill. It finally emerged on the hottest day ever recorded in the UK. Forming a significant slice of the Chancellor’s speech at Mansion House on July 19, it was given First Reading down the road in the House of Commons the next day. While First Reading is largely a procedural matter, it does afford us the opportunity to flick through the Bill’s 330 pages, (it’s a big bill, remember the Financial Services and Markets Act 2000, were you expecting anything slimmer?) and see what is there from a regulatory reform, crypto and financial inclusion perspective and, indeed, what is not.

The Chancellor’s speech at the Financial and Professional Services Dinner at Mansion House set out the importance of the financial services sector to the UK economy, and the central role of the Financial Services and Markets Bill in delivering the government’s vision for an open, green, and technologically advanced financial services sector that is globally competitive.

The bill, in broad terms, is said to seize the opportunities of EU Exit, tailoring financial services regulation to UK markets to bolster the competitiveness of the UK as a global financial centre and deliver better outcomes for consumers and businesses. The bill will:

• implement the outcomes of the future regulatory framework review,
• maintain the UK’s position as an open and global financial hub,
• harness the opportunities of innovative technologies in financial services,
• bolster the competitiveness of UK markets and promote the effective use of capital, and
• support the levelling up agenda, promote financial inclusion, and consumer protection.

In short, that is the stated purpose of the 330 pages.

In terms of the regulatory framework review perhaps the two most significant issues are the call out of the ‘call- in’ powers for HM Treasury. Much talked of pre-publication, now post-publication they are currently called out and left out of the bill. Second, the question of where such scrutiny of regulatory powers will rest, with regulators or, preferably, in a mix with a strong role clearly established for Parliament.

Focusing in on crypto, perhaps the most pertinent line from the Chancellor’s Mansion House speech in respect of the bill was:

“It reinforces the UK’s position as a leading centre for technology as we safely adopt crypto assets.”

“That’s our vision to make the United Kingdom one of the most dynamic financial centres in the world.”

What this looks like in the current bill as drafted is:

Section 22 of the bill contains a new power for HM Treasury to introduce bespoke rules on the regulation of payments, payment systems and service providers in relation to the payments that include “digital settlement assets”, which includes any digital representation of value or rights, whether or not cryptographically secured, that

“(a) can be used for the settlement of payment obligations;

(b) can be transferred, stored or traded electronically, and

(c) uses technology supporting the recording or storage of data (which may include distributed ledger technology).”

It is intended that this will enable the government to place payments technology that relies on distributed ledger technology or other forms of cryptography on a clearer regulatory footing. The UK has such an opportunity with such new technologies as DLT, provisions in the bill should certainly help with this.

The House of Lords was right into this the very next day with Minister Penn, for HM Treasury, answering questions on the UK’s crypto aspirations stating:

“The Government’s clear message to crypto asset firms is that the UK is open for business. The Government have announced a range of reforms to position the UK as a crypto asset technology hub, including legislating to bring stable coins into payments regulation, committing to consult on regulation on a broader set of crypto asset activities later this year and exploring ways to enhance the competitiveness of the UK tax system to further encourage the development of the crypto asset market.”

“It is not necessarily the Government’s position that crypto assets offer a better means of exchange, but they represent part of a trend of rapid innovation in financial technology. That is something we want to encourage, particularly because of some of the technology underlying some crypto assets. But the noble and learned Lord is right that they also pose risks to consumers. That is why we have already taken action on, for example, financial promotions of crypto assets and are looking at the wider question of crypto asset regulation in a consultation later this year.”

“I would like to reassure my noble friend that we are taking a staged and proportionate approach to crypto asset regulation that is sensitive to the risks posed but also responsive to new developments in the market. I have referred to a number of areas in which we have already regulated for crypto assets, and in the forthcoming Financial Services and Markets Bill we will legislate to regulate stable coins. Later this year, we will also consult on the wider regulation of the sector. I absolutely agree with him about the opportunities this market can provide for the UK economy.”

In summary, I think Minister Penn’s responses demonstrate a positive, proportionate approach to crypto from the Government and the benefits that may, not will, be realized in Britain.

Financial inclusion, vital for those who find themselves on the wrong side of the inclusion line, crucial for all of us- economically, socially, psychologically, gets a good showing in the bill, particularly in terms of access to cash. Having worked on this issue for years it is good to see this so clearly on the face of the bill. Cash matters, it matters materially to millions, and it is right that this right to rely on cash is enshrined in statute.

The bill is said to usher in the largest change to financial services in a generation. For once, I think that claim is germane.

And to the crypto firms, the businesses, it is worth reflecting, no matter how good the technology, the runway, every single scheme, start up, or scaler, in this space will do well to have a good dose of monetary policy understanding and embedding in their approach for the benefit of them and us.

Finally, I will be looking at bringing forward multiple amendments to the bill when it arrives in the House of Lords and am, as ever, very interested in what readers believe should be in the bill that isn’t and perhaps, what is and should not?  Do, please, be in touch.

This is one of our biggest opportunities to set a financial services and markets framework optimized to support Covid recovery, levelling up, enabling and empowering. We all have a role to play to ensure the Government achieve this.