What is the Financial Services and Markets Bill?

The Financial Services and Markets Bill (the “Bill”) was introduced to Parliament on 20 July 2022.  The Bill will reach the Committee stage on 19 October 2022.

The Bill proposes an update to aspects of the UK regulation of the provision of financial services in the UK following Brexit.

The Bill also outlines the proposed first steps to the UK implementing regulation regarding cryptoassets.  Indeed, one particularly interesting aspect of the Bill is its proposal to introduce a regulatory framework to bring stablecoins (a specific type of cryptoasset) into the regulatory framework for payments in the UK.

However, as will be seen, the proposed regulation is quite specific, and only goes some way to implementing wider UK cryptoasset regulation. 

This leaves the question whether the proposed regulation is enough to ensure that the UK remains competitive and open to business and investment in this sector.

What specific crypto regulation does the Bill propose?

The Bill proposes a regulatory framework enabling stablecoins to be incorporated into the current regulations concerning payments in the UK. The Bill, therefore, envisages a time when certain stablecoins could be regulated for use as payments.

Gherson’s team has already explored what a stablecoin is in their blog “Stablecoin regulation in the UK”.

The background to the measures proposed in the Bill is HM Treasury’s consultation on the UK’s regulatory approach to cryptoassets.  The consultation proposed a stage approach to regulation, and particularly noted that one particular type of crypto asset, namely a stablecoin, had the potential to develop into a widespread means of payment and deliver improvement to payment transactions.  As such, the Bill now brings this into effect.

Are cryptoassets already regulated in the UK?

Currently, AML rules apply to certain crypto businesses (potentially including those dealing with cryptoassets such as Non-Fungible Tokens (“NFTs”)).  In addition, certain types of cryptoassets will be regulated, depending on their characteristics. 

Gherson’s team has previously written a blog entitled “UK Crypto Regulation – what is the current state of crypto regulation in the UK”.

In addition, the team has previously written a blog with regards to the UK regulation of NFTs and also NFT (work of art) anti-money laundering regulation and compliance in the UK.

How does the Bill propose regulating stablecoins?

The Bill, therefore, brings activities facilitating the use of certain stablecoins into the UK regulatory perimeter by amending the existing electronic payment and payment system regulatory frameworks.

It is also interesting to note that the Government perhaps intends to go further, and will launch a consultation on its regulatory approach to the use of wider cryptoassets (i.e. not just stablecoins) for making payments.

What are some more specifics of the Bill’s proposals?

Specifically, the proposed Bill will:

• Give HM Treasury powers to establish a Financial Conduct Authority authorisation and supervision regime in relation to stable coins;
• Enable Payments Service Regulator to regulate payment systems using digital assets;
• Enable HM Treasury to apply the Financial Markets Infrastructure Special Administration Regime (FMI SAR) to stablecoin firms that have been recognised by HM Treasury;
• Amend or dis-apply existing FCA or PRA rules in areas relating to financial stability to avoid conflicting requirements.

What does all this mean?

However, the Bill could be the first step along the road to wider and more specific cryptoasset regulation.  Indeed, Gherson’s team has long been arguing for the need for a bespoke UK cryptoasset regulatory regime.  Up to now, the lack of a definite regulatory framework surrounding cryptoassets has hindered their take-up on a large scale, as companies and investors were reluctant to get involved in an area where there was a lack of clear and established rules. 

In fact, as far back as July 2021, Gherson’s white-collar crime and regulatory team posed the question via an article in Finextra whether it was time for a bespoke UK crypto regulation regime.  

The Bill indicates a growing interest in reinforcing the regulation of cryptoassets in the UK.

If this trend continues, it could encourage businesses or investors who have been interested in cryptoassets, but have so far been hesitant to take the plunge.  At some point, there might even be the implementation of a wider crypto-asset regulatory regime.

How can Gherson assist you?

In these constantly changing times, firms that deal with cryptoassets, and additionally have exposure to firms that do, will need to carefully consider all their systems and controls to ensure that they are able to comply with all relevant AML and sanctions regulations.

Gherson’s white-collar crime and regulatory team are able to provide advice and assistance with AML and sanctions compliance, including in situations involving cryptoassets:

            How to address the risk of sanctions evasion via cryptoassets

            UK cryptoasset firms and sanctions reporting

 Additionally, the team has recently started a series on the regulation of crypto, with the aim of advising those who work in the compliance of this sector.  In addition, for those who would like advice on relevant issues, including those who have had issues with the FCA registration process, our specialist regulatory and compliance team can guide individuals and companies through the process.

If you have any questions arising from this blog, please do not hesitate to contact us for advice, send us an e-mail, or, alternatively, follow us on Twitter, Facebook, or LinkedIn to stay-up-to-date.

The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please don’t hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.

©Gherson 2022

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