Financial Services and Markets Bill 2022-23

The Financial Services and Markets Bill 2022-23 (Bill 146) is a Government Bill introduced in the House of Commons on 20 July 2022. Second reading was on 7 September 2022 and the Bill completed its Commons Committee stage, in nine sittings, on 3 November 2022.

According to the Treasury, the Bill would:

• Implement the outcomes of the Future Regulatory Framework (FRF) 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
• Support the levelling up agenda, promote financial inclusion and consumer protection

Bill documents are available on Parliament’s online bill page. As introduced, the Bill contained 73 clauses and 14 Schedules, covering over 20 separate measures and stretching to 335 pages. All its measures (with two exceptions relating to Northern Ireland) would apply across the UK.

Leaving the EU Single Market

In 2021, the financial services sector contributed 8.3% of total UK economic output and (according to PwC research) in 2019/20 provided about a tenth of total Government tax receipts.

The UK is currently undergoing changes in the regulation of financial services. In October 2020, the Treasury consulted on the Future Regulatory Framework for financial services to consider how to adapt regulation to reflect the UK’s new position outside of the EU. A further consultation (PDF) was issued in November 2021. The Treasury responded to that consultation (PDF) alongside the Bill’s publication in July 2022. Many of the Bill’s measures seek to implement measures consulted on as part of this review.

As an EU Member State, the UK applied hundreds of pieces of EU financial services legislation. When the UK left the EU Single Market on 31 December 2020, much of this legislation was “onshored” (preserved in domestic law) as “retained EU law”. The Government believes that, for the most part, issues dealt with by retained EU law would best be dealt with by UK regulators – mainly the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) – exercising their own rule-making powers.

The Bill’s measures (as introduced)

The Bill is made up of seven Parts.

Part 1 contains three Chapters:

• Chapter 1 (clauses 1 to 7) would allow for the Treasury to revoke (or amend) hundreds of pieces of retained EU financial services law.
  
  
• Chapter 2 (clauses 8 to 23) would then grant additional powers to regulators to, in part, fill gaps in regulation left by the revocation of retained EU law. It would also allow for greater regulation of financial promotions (advertising of certain financial services) and stablecoins (a type of cryptoasset).
  
  
• Chapter 3 (clauses 24 to 46 – with an additional clause 47 (Chair of the Payment Systems Regulator as member of FCA Board) added at Commons Committee Stage) would implement measures intended to ensure appropriate democratic accountability for regulators, considering the significant transfer of powers to them that the Bill facilitates. This would include giving the FCA and PRA new secondary objectives to advance the international competitiveness and medium to long-term growth of the UK economy, and to have regard to the Government’s commitment to reach net zero emissions by 2050. It would also allow greater involvement (but, the Government argues, not direction) by the Treasury in the regulators’ rule-making process, as well as greater involvement by the Treasury Select Committee in FCA and PRA consultations.

Part 2 (originally, clauses 47 and 48) seeks to ensure continued access to cash.

Parts 3 to 5 (originally, clauses 49 to 51) would allow for greater regulation of individuals working in firms that set processes for financial transactions. It would also establish special procedures in the event of insolvency of one such type of firm (central counterparties) and insurers.

Part 6 (originally, clauses 52 to 65 – with a new clause 61 (Cryptoassets) added at Committee Stage) contains several miscellaneous measures. These include a replacement for the Cash Ratio Deposit scheme (the Bank Levy) and enhanced compensation arrangements for victims of authorised push payment fraud.

Part 7 (originally, clauses 66 to 73) contains provisions relating to, for example, interpretation, extent and commencement of the Bill.

Initial responses to the Bill

The banking and finance trade body UK Finance supports the Bill, arguing it “gives the UK the opportunity to create a more competitive financial services sector post-Brexit, while preserving high regulatory standards tailored to our needs”. TheCityUK, which advocates for the financial sector, said it would “study the Bill in detail”. It said it supported many of its key measures, including on new competitiveness and growth objectives for the regulators (clause 24), transfers of powers to the regulators, and on giving the Government a power to require regulators to review their rules (clause 27). The consumer group Which? also expressed support for the Government’s measures on access to cash and authorised push payment fraud (clauses 47-48 and 62).

However, Finance for our Future, a coalition of public interest groups, argued the Bill would “miss a golden opportunity to strengthen the UK’s global leadership position by failing to focus regulation on what matters.”

Financial charity the Finance Innovation Lab was concerned that the Bill’s “proposals don’t go far enough to address [the] UK’s biggest challenges.” It also opposed proposals to grant the financial regulators new growth and competitiveness objectives (clause 24). Social justice campaign group Global Justice Now said the Bill would “give even more power” to the financial sector. It feared this would “unleash a wave of dangerous financial trading, fuelling volatility in the economy and further driving up the prices of basic commodities.”

Second reading and Committee Stages Commons Second Reading

The Bill was given its second reading on Wednesday 7 September without a division. 39 MPs participated in the “very well subscribed” debate, which was opened by then-Economic Secretary Richard Fuller.

Labour (Shadow Minister Tulip Siddiq) and the Liberal Demorats (Sarah Olney) expressed broad support for the Bill. The SNP had tabled a reasoned amendment to deny the Bill a second reading (which was not selected for a vote), but opted not to oppose second reading itself. Shadow Minister Tulip Siddiq called for the Bill to go further to counter fraud, ensure access to essential banking services, and support the mutuals sector.

Several Members (including Labour MPs Dame Angela Eagle and Emma Hardy, and Peter Grant (SNP)) raised concerns over whether the Bill would grant too much power to the Goverment to by-pass parliamentary scrutiny.

A number of Conservatives (including then-backbenchers Rishi Sunak and John Glen, and Bim Afolami) expressed support for a Government proposal (which was ultimately dropped) to amend the Bill to introduce a “call-in” power allowing the Government to intervene more directly in financial services regulation. Lastly, former Shadow Chancellor John McDonnell, Sarah Olney and Caroline Lucas (Green) expressed concern over proposals (in clause 24) to grant regulators (the FCA and PRA) new secondary objectives relating to growth and international competitiveness, at the possible expense of other objectives.

Commons Committee Stage

The Public Bill Committee met nine times between 19 October and 3 November 2022. It comprised 17 MPs: 10 Conservative (Treasury Minister Andrew Griffith), 5 Labour (including Shadow Minister Tulip Siddiq) and 2 SNP (including spokesperson Peter Grant).

Two Government New Clauses were inserted – both without division. New Clause 13 (Chair of the Payment Systems Regulator as member of FCA Board) would add the chair of the Payment Systems Regulator to the board of the FCA. It now forms clause 47 of the Bill. New Clause 14 would (according to Andrew Griffith) bring cryptoassets “within the scope of regulation for the first time…It will ensure that the Treasury is equipped to respond to developments in the crypto sector more quickly and deliver regulation in an agile, risk-based way“. It now forms clause 61 of the Bill.

Several largely technical Government amendments were made to clauses 5, 8, 36, 67 (currently clause 69), 70 (currently clause 72), 72 (currently clause 74), and Schedules 11 and 12. No non-Government amendments were made to the Bill.