The following posts provide a snapshot of selected UK, EU and global wholesale financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
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New UK Requirements for Payment Account Contract Terminations
04/04/2024
HM Treasury has published a policy note and a draft statutory instrument—The Payment Services and Payment Accounts (Contract Terminations) (Amendment) Regulations 2024—on strengthening requirements in the Payment Services Regulations 2017 on contract terminations. These policy changes follow the furore over the de-banking by NatWest Bank of the prominent U.K. politician Nigel Farage, which led to the resignation of its CEO.
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Draft UK Legislation to Address Push Payment Fraud
04/04/2024
HM Treasury has published a policy note and a draft statutory instrument—The Payment Services (Amendment) Regulations 2024—on a risk-based approach to payments to mitigate against authorized push payment fraud. HM Treasury confirms its policy for allowing payment service providers to delay payments processing when there are reasonable grounds to suspect fraud or dishonesty. The draft statutory instrument amends the Payment Services Regulations 2017 to allow PSPs to delay executing an outbound payment transaction by up to four business days from receipt of the order where there are reasonable grounds to suspect fraud or dishonesty by someone other than the payer and the payer's PSP requires the time to contact the payer (its customer) or a third party (e.g., law enforcement) to determine whether to execute the payment.
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UK Fifth Commencement Regulations Under the Financial Services and Markets Act 2023 Published
03/04/2024
The Fifth Commencement Regulations - the Financial Services and Markets Act 2023 (Commencement No. 5) Regulations 2024 (SI 2024/250)- under the Financial Services and Markets Act 2023 were made on February 29, 2024. One of the major reforms in the Financial Services and Markets Act 2023 related to regulatory accountability, especially of the Financial Conduct Authority and Prudential Regulation Authority. The Fifth Commencement Regulations now provide, among other things, for the coming into effect of certain provisions relating to the accountability of the Payment Systems Regulator, including:- Starting March 1, 2024, a requirement on the PSR to take certain steps in advance of taking an action where there is a material risk such action would be incompatible with the U.K.'s international trade obligations.
- Starting August 1, 2024, requirements for the PSR's consultations, requiring the PSR to keep general requirements under review, HM Treasury's powers to require the PSR to impose a requirement for a specified activity or for specific firms, detailing the cost-benefit analysis obligations and panel appointment statements of policy.
- Starting January 1, 2025, the remaining provisions on the PSR's accountability that are not already in force.
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Amendments Proposed to Global Standard for Banks’ Exposures to Crypto-Assets
01/25/2024
Following publication of the final bank prudential requirements for exposures to crypto-assets, the Basel Committee on Banking Supervision is consulting on proposed amendments to the requirements for exposures to stablecoins. The consultation closes on March 28, 2024. The Basel Committee does not state whether these proposals, if they proceed, would need to be implemented by January 1, 2025, which is the implementation date for the final standard for banks' exposures to crypto-assets.
The Basel Committee's final requirements for exposures to crypto-assets apply different prudential approaches depending on whether a crypto-asset meets certain conditions. Crypto-assets that meet all of the conditions are referred to as "Group 1 crypto-assets&" and, within that group, stablecoins fall within Group 1b. The Basel Committee is proposing changes to the requirements that determine whether a bank can include a stablecoin exposure in the Group 1b category. First, the Committee is proposing changes to the composition of reserve assets of stablecoins that will enhance the asset quality criteria for reserve assets under the redemption risk test and provide additional safeguards for reserve assets. Secondly, the Committee proposes that banks should be required to perform due diligence, at the point of acquisition and regularly thereafter, that provides the bank with an adequate understanding of the stabilization mechanism and its effectiveness. Statistical tests will be required as part of the due diligence. A regulator would be capable of overriding a bank's categorization of its exposure on the basis of those test results.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, FinTech, Payment Services -
Fourth Commencement Regulations Under Financial Services and Markets Act 2023 Published
01/18/2024
The Fourth Commencement Regulations - the Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023 - under the Financial Services and Markets Act 2023 were made on December 14, 2023. The Fourth Commencement Regulations provide, among other things, for:- The repeal of HM Treasury’s obligation to review legislation in various financial services legislation, including but not limited to, the Short Selling Regulation, the Securitization Regulation, the Alternative Investment Fund Managers Regulations and the U.K. version of the European Market Infrastructure Regulation. These repeals took effect on December 15, 2023.
- The revocation from April 5, 2024 of the Data Reporting Services Regulations 2017 and related implementing legislation such as (i) the provisions in the onshored Markets in Financial Instruments Regulations that provide HM Treasury and the regulators with powers to specify further detail relating to data reporting services; and (ii) the provisions in the MiFIR Delegated Regulation on the provision of data on reasonable commercial basis. The revocation of these provisions on this date aligns with HM Treasury's aim of the draft Data Reporting Services Regulations 2023 entering into force on April 5, 2024. The draft Data Reporting Services Regulations 2023 will replace the Data Reporting Services Regulations 2017, restating with modifications some of the 2017 content. The FCA has confirmed the final framework for a consolidated tape for bonds, which will also enter into force on April 5, 2024.
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Payment Systems Regulator Publishes New Rules for Mandatory Reimbursement of Authorized Push Payment Scams
01/11/2024
The Payment Systems Regulator has published its Final Policy Statement on its new regime for fighting authorized push payment scams. The Financial Services and Markets Act 2023 (discussed in our client note, “A Boost for UK Financial Services”) imposed a new obligation on the PSR to require payment service providers to reimburse consumers when a payment is executed over the Faster Payments Scheme and the payment was executed following fraud or dishonesty.
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UK Statutory Instrument Made to Ensure Legislation Remains Consistent with Latest Repeals
01/08/2024
The Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023 make consequential amendments to various pieces of legislation arising from the repeal by the Financial Services and Markets Act 2023 of certain retained EU financial services laws. The Regulations took effect on January 1, 2024. The Financial Services and Markets Act 2023 (Commencement No. 1) Regulations 2023 provided for the repeal of 98 statutory instruments on August 29, 2023, and further revocations from January 1, 2024, including the European Long-Term Investment Funds Regulation (and related SI and tertiary legislation) and a provision from the Capital Requirements Regulation so as to allow the Bank of England more flexibility to set internal Minimum Requirements for Own Funds and Eligible Liabilities for U.K. subsidiaries of non-U.K. global systemically important banks. These latest Regulations make consequential amendments to ensure that legislation remains consistent with the January 2024 repeals.
Consequential amendments are also made to account for the removal of the double volume cap from the U.K.'s Markets in Financial Instruments regime. The DVC limited the level of dark trading to a certain proportion of total trading in an equity. Instead, the Financial Conduct Authority must monitor trading and has new powers to direct that transparency waivers should be suspended if the ongoing use of the waiver would impact market integrity. In addition, consequential amendments are made following the Electronic Money, Payment Card Interchange Fee and Payment Services (Amendment) Regulations 2023 which amended payments-related REUL.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, Funds, MiFID II, Payment Services -
UK Regulators Propose Rules for Supervising Critical Third Parties
12/12/2023
Following feedback to their July discussion paper, the U.K. regulators—the Bank of England, Prudential Regulation Authority and Financial Conduct Authority—have launched a joint consultation proposing rules and regulatory expectations for critical third parties. This follows concerns that the financial sector relies heavily on unregulated service providers, particularly in the IT sector, for critical infrastructure whose failure could cause systemic issues or customer issues. The Financial Services and Markets Act 2023 gave HM Treasury powers to designate an entity as a "critical third party" if its failure would pose financial stability or confidence risk to the U.K. and the regulators will have new direct powers over third parties that provide critical services to authorized firms, their service providers and financial market infrastructures. The regulators' rules would only apply to the services provided by a CTP to one of those firms. Responses to the consultation may be submitted until March 15, 2024.
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UK Future of Payments Review Report Published
11/29/2023
HM Treasury has published the Future of Payments Review report, setting out the Review's recommendations for HM Treasury, the regulators and industry that aim to improve the U.K.'s existing payments landscape for consumers. The report follows the July 2023 call for evidence. The main recommendation is for the government to develop a National Payments Vision and Strategy, which will provide high-level guidance on priorities and define guiding principles on safety, simplification, coordination, responsiveness, inclusivity and accountability.
The Review makes several other recommendations.
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Bank of England Proposes Regulatory Regime for Systemic Payment Systems Using Stablecoins
11/27/2023
The Bank of England has published a discussion paper on its proposed approach to developing a regulatory regime for systemic payment systems using stablecoins and related service providers. The BoE’s paper follows the government’s recent Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins which confirmed that these types of stablecoins will be brought into the U.K. regulatory perimeter.
This is part of HM Treasury’s plan to regulate cryptoassets, focusing first on fiat-backed stablecoins. The BoE will be responsible for the financial stability of systemic payment systems using stablecoins. The Financial Conduct Authority will supervise non-systemic fiat backed stablecoins for prudential and conduct of business purposes, and systemic fiat-backed stablecoins for conduct purposes only, and has published a discussion paper alongside the BoE's discussion paper. Responses to both discussion papers may be submitted until February 6, 2024. The Prudential Regulation Authority will supervise banks' activities in tokenized deposits. The PRA has written to banks stating that any business in fiat-backed stablecoins will, among other things, need to be conducted from a separate legal entity under branding that is different to the bank' branding. The Payment Systems Regulator will supervise the competition aspects relating to systemic payment systems using fiat backed stablecoins.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, Payment Services -
UK Prudential Regulator Sets Out Expectations for Banks Innovating in Digital Money
11/27/2023
The U.K. Prudential Regulation Authority has published a Dear CEO letter, addressed to CEOs of banks, setting out its expectations of banks (deposit-takers) regarding the risks that arise from innovations in digital money and money-like instruments available to retail customers. The letter focuses on innovations in the use of deposits (and tokenized deposits), e-money and regulated stablecoins used for payment (which are being brought into the regulatory perimeter).
The PRA sets out how banks are expected to limit contagion arising from confusion regarding the different protections available to retail holders of bank deposits, e-money and regulated stablecoins. Where a bank or its group want to issue e-money or regulated stablecoins, that activity should be carried out from an insolvency-remote entity that is separate to the bank, with different branding from the bank to ensure that any failure of the e-money or stablecoin issuer would not impact the bank and the continuity of its deposit-taking services. The PRA also expects any tokenized deposit-taking to be undertaken in a way that ensures protection under the Financial Services Compensation Scheme. An e-money or stablecoin issuer that decides to accept traditional deposits would first need to establish a separate entity to obtain permission to operate as a bank.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan
TOPICS : Bank Prudential Regulation & Regulatory Capital, FinTech, Payment Services -
UK Conduct Authority Consults on Regulating Fiat-Backed Stablecoins
11/27/2023
The U.K. Financial Conduct Authority has published a discussion paper regarding potential future proposals for regulating fiat-backed stablecoins, including when used as a means of payment. The FCA's paper follows the government's recent Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins, which confirmed that changes to legislation would bring these types of stablecoins into the U.K. regulatory perimeter. This is part of HM Treasury's plan to regulate cryptoassets, focusing first on fiat-backed stablecoins.
The FCA will supervise non-systemic fiat-backed stablecoins for prudential and conduct of business purposes, and systemic fiat-backed stablecoins for conduct purposes only. The Bank of England is responsible for the financial stability of systemic payment systems using fiat-backed stablecoins and has published a discussion paper alongside the FCA's discussion paper. Responses to both discussion papers may be submitted until February 6, 2024. The Prudential Regulation Authority will supervise banks' activities in tokenized deposits. The PRA has written to banks stating that any business in fiat-backed stablecoins will, among other things, need to be conducted from a separate legal entity under branding that is different to the banks' branding. The Payment Systems Regulator will supervise the competition aspects relating to systemic payment systems that use fiat-backed stablecoins.
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HM Treasury Publishes Response to Cryptoasset Regulatory Regime Consultation
11/03/2023
HM Treasury has published a response to its consultation on cryptoasset regulation, setting out its final proposals for the U.K.'s cryptoasset regulatory regime. The U.K. plans to make cryptoassets a new category of "specified investment" under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and regulate certain activities conducted in relation to them. Under the new regime:- Firms conducting relevant activities and offering their services in or to the U.K. by way of business would need to apply for authorization by the U.K. Financial Conduct Authority. The relevant activities are: issuing or admitting cryptoassets to trading; operating cryptoasset trading venues; dealing as principal or arranging deals in cryptoassets; operating a cryptoasset lending platform; and safeguarding or safeguarding and administering cryptoassets (or arranging the same). Overseas firms offering their services into the U.K. may need to obtain FCA permission (although HM Treasury envisages equivalence/deference-type arrangements in the future and is considering alternative approaches to full authorization in the interim).
- Firms that are already authorized to conduct other activities will need to apply for a Variation of Permission if they wish to conduct regulated cryptoasset activities.
- Authorization under the new regime will not be automatically granted to cryptoasset firms registered with the U.K. Financial Conduct Authority for money laundering purposes, although the FCA will consider applicants' regulatory history when determining authorization applications.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Consumer Protection, Financial Market Infrastructure, FinTech, MiFID II, Payment Services -
HM Treasury Publishes Plan for Regulation of Fiat-backed Stablecoins
11/03/2023
HM Treasury has published a Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins, setting out the next steps for the implementation of stablecoin regulation in the U.K. Fiat-backed stablecoins are (under HM Treasury's proposed definition) those which seek or purport to maintain a stable value by reference to a fiat currency, and hold that currency, in whole or in part, as backing.
The Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services) empowers HM Treasury to bring certain activities related to the use of "digital settlement assets" (which may include fiat-backed stablecoins), within the regulatory perimeter and to establish a regime for the supervision of stablecoin issuers. DSAs are defined broadly under the FSM Act as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. HM Treasury plans to bring certain activities related to fiat-backed stablecoins within the scope of regulation ahead of other types of cryptoasset, due to their potential to become a widespread means of retail payment.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Consumer Protection, Financial Market Infrastructure, FinTech, Payment Services -
Basel Committee Report on 2023 Banking Turmoil
10/20/2023
The Basel Committee on Banking Supervision published a press release in early October in which it announced:- That it would consult on disclosure frameworks for climate-related financial risks (in November 2023) and banks' cryptoasset exposures (soon).
- The publication of its report on the banking turmoil of 2023, which assesses the causes of the turmoil, the regulatory and supervisory responses, and the initial lessons learnt. The Basel Committee states that it will be undertaking some follow-up work, including prioritizing work to bolster supervisory effectiveness globally and assessing whether any aspects of the Basel Framework did not function as intended during the turmoil.
- That by mid-2024 it would publish a report on developments in the digitalisation of finance and their implications for banks and supervisors.
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Draft UK Legislation on Revised Payment Service Contract Termination Rules Expected Before 2024
10/13/2023
HM Treasury has published a further policy statement on payment service contract termination rule changes, setting out its approach to implementation, timing and next steps. This latest policy statement follows the government's July policy statement in which it confirmed that it would bring forward legislation to enhance the requirements governing payment account terminations. This issue has become topical in light of the "de-banking" of higher risk or less profitable clients by several institutions and recent scandals in the U.K. involving account terminations of some politicians. The main changes being brought forward are:- A requirement for payment account providers to provide clear and tailored explanatory reasons to an account user for the termination. The requirement would not apply where it would be unlawful to provide such information, for example, under U.K. financial crime and anti-money laundering legislation.
- A 90-day notice period before a payment account is terminated by a provider, subject to situations where there is a serious and uncorrected breach by the payment user of the terms applying to the account. It would also be clarified that reasons such as brand protection would not be sufficient justification for a shorter notice period.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : AML/CTF, Insider Trading and Sanctions, Consumer Protection, Payment Services -
UK Joint Money Laundering Steering Group Proposed Cryptoasset Travel Rule Guidance
08/14/2023
The U.K. Joint Money Laundering Steering Group opened a consultation on July 28, 2023 on guidance on the U.K. travel rule for cryptoasset transfers. The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 introduced the cryptoasset travel rule by amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, and firms will need to comply with the requirements from September 1, 2023. The travel rule requires certain identification information on the sender (originator) and recipient (beneficiary) to accompany a transfer of a cryptoasset. The JMLSG is proposing to add a new annex setting out guidance on the U.K. travel rule for cryptoassets, covering scope, information requirements, batch transfers, returns, unhosted wallet transfers, wallet attribution, linked transactions and use of a layer-2 solution such as the Lightning Network. The guidance also states that firms should consider communications from the Financial Conduct Authority on the sunrise issue, which refers to the impact of jurisdictions implementing the travel rule at different times. Firms may encounter issues when dealing with counterparties in jurisdictions that have not implemented the travel rule for cryptoassets, for example, when dealing with EU counterparties for which the EU travel rules for cryptoasset transfers will only apply from December 30, 2024. Responses to the JMLSG consultation may be submitted until August 25, 2023.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : AML/CTF, Insider Trading and Sanctions, FinTech, Payment Services -
Financial Stability Board Issues Recommendations for Regulating Cryptoasset Activities and Markets
08/14/2023
The Financial Stability Board has finalized its global regulatory framework for cryptoasset activities and markets and revised the framework for global stablecoin arrangements. Both frameworks, based on the principle of "same activity, same risk, same regulation" aim to provide a basis for consistent regulation across the globe that is proportionate to the risks.
Comprising nine high-level recommendations for the regulation, supervision and oversight of cryptoasset activities and markets, the cryptoasset framework sets out the key objectives for implementation of an effective regulatory and supervisory regime for mitigating the risks posed by cryptoassets. The recommendations are:
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HM Treasury Publishes Response to Payments Regulation and Systemic Perimeter Consultation
08/14/2023
HM Treasury has published a response to its consultation on payments regulation and the systemic perimeter. The consultation was prompted by the U.K. government's Payments Landscape Review and HM Treasury's concern that some payments services operators were not subject to systemic supervision but may pose systemic risks to the U.K. financial system.
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HM Treasury Consults on UK Future of Payments Review
08/04/2023
HM Treasury has published a Call for Input on the U.K. Future of Payments Review, an investigation into how future payments are likely to be made and how the U.K. can offer world-leading retail payments. The review is focused on consumer needs — specifically, those of individuals and businesses processing retail payments. Input is sought on the following issues:- What are the most important consumer retail payment journeys, both today and in the next five years?
- How does the experience of these journeys by U.K. consumers (individuals and businesses) compare with those of other leading countries?
- How likely are the existing plans and initiatives across the payments landscape to deliver world-leading payment journeys for U.K. consumers?
ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Brexit for Financial Services, Consumer Protection, Payment Services -
EU Travel Rule for Crypto-Assets Set to Apply from January 2025
05/02/2023
On April 20, 2023, the European Parliament announced that it had formally endorsed the draft Regulation on information accompanying transfers of funds and crypto assets (referred to here as the EU Travel Rule Regulation). The draft Markets in Crypto-Assets (MiCA) Regulation has also been adopted.
The existing EU Wire Transfer Regulation (EU WTR) requires EU Payment Service Provider to ensure that information on the payer and the payee accompanies a transfer of funds. The funds can be in any currency, and comprise banknotes and coins, scriptural money and electronic money.
The EU Travel Rule Regulation will extend the requirements to crypto assets and crypto-asset services providers (CASPs), (both as defined under the draft MiCA Regulation) with information on the originator and the beneficiary being required to accompany any transfers in crypto assets, regardless of whether they are domestic or cross-border. The requirements will not apply to person-to-person transfers of crypto assets where a CASP is not involved, or when both the originator and the beneficiary are providers of crypto-asset transfers acting on their own behalf.
The EU Travel Rule Regulation must still be published in the Official Journal of the European Union before it comes into effect. This is likely to be around July this year. At that time, the EU Travel Rule Regulation will repeal the EU WTR, however, the existing requirements on information accompanying transfers of funds will carry over to the new Regulation. The EU Travel Rule Regulation will apply from the same date that the MiCA Regulation applies, which is expected to be January 2025.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : AML/CTF, Insider Trading and Sanctions, FinTech, Payment Services -
UK Government Publishes its Proposals for Cryptoasset Regulation
02/14/2023
The U.K. government has published its much-anticipated proposals for regulating the cryptoasset industry. These proposals, currently in the form of a consultation, will see many (but not all) cryptoasset-related activities being brought within the regulatory perimeter for financial services in the U.K. The consultation is extensive, covering the main elements of a new regime for cryptoasset issuance and disclosure, trading, custody and lending, as well as a proposed market abuse framework for cryptoassets.
The consultation closes on 30 April 2023. The government will publish its response once it has analysed the feedback, which will be followed by legislation being put before Parliament. The Financial Conduct Authority will consult on its proposed detailed rules once the legislation has been published.
The government has also announced a significant change to its earlier communicated approach to the regulation of cryptoasset financial promotions. Previously, such promotions could be issued only by regulated financial institutions. The changes will mean that those cryptoasset businesses that are registered with the FCA for the purposes of anti-money laundering compliance will be able to communicate their own financial promotions in relation to qualifying cryptoassets.
We discuss these proposals in detail in our client note, "UK Proposals for Cryptoasset Regulation". -
Final Global Prudential Requirements for Banks' Exposures to Crypto-Assets
12/16/2022
The Basel Committee on Banking Supervision has published its final bank prudential requirements for exposures to crypto-assets. The Basel Committee consulted on these requirements in 2021 and 2022 and has now set the minimum standards based on the principle of "same risk, same activity, same treatment." These standards will be implemented by January 1, 2025. The Basel Committee has maintained the different prudential approaches depending on whether a crypto-asset meets certain conditions. Crypto-assets that meet all of the conditions are referred to as "Group 1 crypto-assets" and are generally tokenized crypto-assets and stablecoins. Group 2 crypto-assets are all other crypto-assets, which are deemed to present additional and higher risks than Group 1 crypto-assets. The capital requirements for Group 1 crypto-assets will be based on the risk weights for exposures under the existing Basel framework. Exposures to Group 2 crypto-assets will attract a higher capital charge.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, FinTech, Payment Services -
UK Law Commission Consults on Law Reforms for Digital Assets
07/28/2022
Following the Call for Evidence on digital assets in 2021, the U.K. Law Commission has issued a consultation on proposals to reform the law of England and Wales to recognize and protect the rights of users of digital assets. The Law Commission believes that the law of England and Wales is sufficiently resilient, flexible and iterative to adapt to digital assets, including cryptoassets and stablecoins. However, the law Commission considers that law reforms are needed to ensure that digital assets gain from consistent legal recognition and protection. Responses to the consultation may be submitted until November 4, 2022.
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UK Regulators Propose Requirements for Critical Third Parties' Services to UK Regulated Firms
07/21/2022
The Bank of England, Prudential Regulation Authority and Financial Conduct Authority (together, the supervisory authorities) have published a discussion paper proposing measures to supervise and enhance the resilience of critical third parties (CTPs) to the U.K. financial sector. Responses to the discussion paper may be submitted until December 23, 2022. The supervisory authorities intend to consult on proposed requirements for CTPs in 2023.
Currently, the supervisory authorities' direct powers over entities providing critical services to U.K. authorized firms, their service providers (authorized e-money institutions, payment institutions and registered account information services) and financial market infrastructures (together, U.K. regulated firms) are limited. The Financial Services and Markets Bill, introduced to Parliament yesterday, would grant HM Treasury and the supervisory authorities' new express powers to oversee such third parties. HM Treasury will be able to designate an entity as a CTP if it provides services to U.K. regulated firms and its failure would pose financial stability or confidence risk to the U.K.
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UK Proposals for Regulating Systemic Payment Activities
07/21/2022
HM Treasury has opened a consultation on payments regulation and the systemic perimeter. The consultation arose out of the Payments Landscape Review and the government’s commitment to consult on bringing systemically important entities within payment chains under Bank of England regulation. Market developments and innovation have changed how risks are dispersed across payment networks. It is therefore likely, according to HM Treasury, that some entities operating in the payments space are not subject to systemic supervision by the Bank of England and as a result pose systemic risks to the U.K. financial system or even to those entities that are subject to Bank of England supervision. This consultation makes various proposals to address such risks or issues. Responses to the consultation may be submitted until October 11, 2022. The government will respond to that feedback in 2023.
Read more.ATTORNEYS: Sandy Collins, Thomas Donegan
TOPICS : Financial Market Infrastructure, FinTech, Payment Services -
UK Government Publishes Financial Services and Markets Bill
07/20/2022
The U.K. government has published the much anticipated Financial Services and Markets Bill. Following its exit from the EU, the U.K. has undertaken a fundamental review of how financial regulation policy and rules should be made, reviewed and established in law, particularly in light of the return of the U.K.'s sovereignty. Furthermore, there has been a substantial assessment of the U.K.'s financial services rules and regulations, with some areas warranting further consideration. The Bill implements the outcomes of the Future Regulatory Framework Review, which assessed whether the U.K. financial services regulatory framework is fit for purpose and able to support future growth, particularly in light of challenges such as Brexit and climate change. On the same day, HM Treasury published its response to the final consultation in the FRF Review. The FSM Bill establishes a revised blueprint for financial services regulation by revamping the existing model under the Financial Services and Markets Act 2000 and revoking retained EU law in financial services. The regulators will be delegated powers for detailed rulemaking, and as a result, become subject to enhanced Parliamentary oversight.
Read more.ATTORNEYS: Sandy Collins, Barnabas W.B. Reynolds
TOPICS : Brexit for Financial Services, FinTech, MiFID II, Payment Services, Securities -
Crypto-Asset Market Turmoil: Financial Stability Board Issues Statement
07/11/2022
The Financial Stability Board has issued a statement on international regulation and supervision of crypto-asset activities. The statement is made in light of the crypto-asset market turmoil. The statement warns crypto-asset service providers to comply with existing legal obligations in the countries in which they operate, which would include anti-money laundering obligations. FSB members are implementing the Financial Action Task Force's recommendations for crypto-asset service providers to be registered for AML purposes and to comply with the so-called travel rule, which requires relevant originator and beneficiary information to accompany crypto-asset transactions.
The FSB reiterates that an effective regulatory framework should adopt the "same risk, same outcome/regulation" approach. The FSB is progressing work with other international standard-setting bodies to tackle potential financial stability risks presented by crypto-assets, including stablecoins. This includes reviewing existing applicable standards, identifying gaps, and adjusting those standards or developing new standards. The FSB's view is that stablecoins that are used as a means of payment potentially present significant risks to financial stability and should be subject to robust regulations and supervision, including transparency obligations and, importantly, holding sufficient reserves to mitigate financial stability risks. The FSB will report to the G20 Finance Ministers and Central Bank Governors in October this year on the adoption of regulatory approaches to stablecoins. -
UK Treasury Committee Makes Recommendation for Future Regulatory Framework Review
06/16/2022
The House of Commons Treasury Committee has published a report on the Future of Financial Services Regulation setting out its view on the priorities for regulatory change in the U.K. now that the U.K. has left the EU. The report considers some of HM Treasury's proposals in the Future Regulatory Framework Review and presents its related recommendations. It also makes specific recommendations for the Financial Conduct Authority and the Prudential Regulation Authority.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, Financial Services, FinTech, Payment Services -
UK Money Laundering Regulation Changes Announced for September 2022
06/15/2022
Following its 2021 consultation on targeted amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs), the U.K. government has published a consultation response which summarises the feedback to the consultation and sets out the government's approach to making changes to the statutory instrument. The amendments will be made in the draft Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, which are intended, for the most part, to take effect from September 1, 2022. A summary of the changes is set out below. The government will also soon publish its response to the call for evidence on the U.K.'s anti-money laundering and counter terrorist financing regulatory and supervisory regime, which covered the overall effectiveness and extent of the regime, whether key elements operate as intended, and the structure of the supervisory regime.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : AML/CTF, Insider Trading and Sanctions, FinTech, Payment Services -
UK Government Consults on Managing Systemic Stablecoin Firm Failures
05/31/2022
HM Treasury has opened a consultation on managing the failure of systemic digital settlement asset firms, including stablecoin firms. In April 2022, the U.K. government confirmed that it will bring the issuing of or the facilitating of the use of stablecoins used as a means of payment into the U.K. regulatory perimeter. Issuers of stablecoins for payments as well as other entities providing related services, including wallet providers and firms providing custody services, will be subject to regulation by the Financial Conduct Authority. The government also noted that, to manage the failure of systemic stablecoin firms, it would be considering extending the definition of a payment system to include arrangements that facilitate or control the transfer of "digital settlement assets" (DSAs). Such firms that are deemed systemically important will also be subject to supervision by the Bank of England, meaning that they will be authorized by the FCA and recognized by the Bank of England, and the Bank will be the lead prudential regulator.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Sandy Collins
TOPICS : FinTech, Payment Services, Recovery & Resolution -
Access to Cash Designation Measures Confirmed
05/19/2022
HM Treasury has published a summary of responses it received to its consultation on protecting access to cash across the U.K. In the response, HM Treasury confirms that it will be proceeding with the proposal to designate which firms will have obligations to ensure reasonable access to withdrawal and deposit facilities for individuals and reasonable access to deposit facilities for SMEs. The measures will be provided for in the Financial Services and Markets Bill, which was announced in the Queen's Speech.
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Government Details Proposed Financial Services and Markets Bill
05/10/2022
Following the Queen's speech yesterday, the government has published a briefing pack setting out details of the bills that it intends to introduce, including the so-called Brexit Freedoms Bill as well as key legislation relevant to financial services. The government will introduce a Financial Services and Markets Bill, which will, among other things:- Introduce new statutory objectives for the financial services regulators to support growth and international competitiveness.
- Implement the changes to the wholesale markets arising out of the Wholesale Markets Review. HM Treasury confirmed in March of this year that the changes that will be made by legislation and where powers will be delegated to the financial services regulators for rules to be made. Among the changes are the removal of the share trading obligation and the double volume cap, changes to the derivatives trading obligation, taking OTC derivatives that are economically equivalent to exchange traded commodity derivatives out of the position limits regime, and the establishment of a consolidated tape.
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UK Payment Systems Regulator Panel Publishes Report on Digital Payments Initiative
05/10/2022
The U.K. Payment Systems Regulator Panel has published a report on its Digital Payments Initiative, which investigated potential barriers to the take-up of digital payments and possible solutions. The Panel advises the PSR on a continuous basis but undertook the Digital Payments Initiative as a special project to address the issue of consumers failing fully to embrace the benefits of digital payments.
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European Commission Consults on Revised EU Payment Services Directive and Open Finance
05/10/2022
The European Commission has published three consultations on the revised EU Payment Services Directive and on open finance. The results of the consultations will help inform the Commission's review of PSD2 and proposed legislation on a broader open finance framework, as part of plans developed under the 2020 EU Digital Finance Strategy and EU Retail Payments Strategy. The review of PSD2 will take stock of the impact that the Directive has had on the EU payments market and whether its objectives have been achieved. The open finance review will gather evidence on the current state of open finance, its further development and effective consumer protection. The EU is proposing to develop an open finance framework, as outlined under the EU's 2021 communication on the Capital Markets Union.
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Queen’s Speech Confirms Government Will Proceed with Brexit Freedoms Bill
05/10/2022
Prince Charles, Prince of Wales, delivered the Queen’s speech in which he announced that the government will be introducing the so-called Brexit Freedoms Bill, which was first announced by Prime Minister Boris Johnson on January 31, 2022, and is intended to make it easier to amend or remove retained EU laws to better suit the U.K.’s circumstances and policies. The Brexit Freedoms Bill will work in tandem with a government drive to reform, repeal and replace EU laws that are seen as outdated, cumbersome or otherwise not in the U.K.’s national interest.
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HM Treasury Publishes Policy Statement on Protecting UK Wholesale Cash Infrastructure
04/26/2022
HM Treasury has published a Policy Statement on its plans for protecting the U.K.'s wholesale cash infrastructure. In recent years, use of cash has diminished in favour of cashless transactions but the U.K. government is aware of the need to continue supporting cash transactions, particularly for elderly and vulnerable groups. The government has been investigating the use and protection of cash payments in the retail sector, including a consultation on protecting access to cash launched in 2021. The results of that consultation are under consideration.
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European Commission Consults on Potential Digital Euro
04/05/2022
The European Commission has launched a targeted consultation on a possible digital euro. The EU is considering introducing a digital euro for retail payments, which would be available alongside cash. A decision has not yet been made. The European Central Bank, responsible for the design and implementation of the digital euro, launched a project in July 2021 to get ready for the potential issuance of a digital euro. The introduction of a digital euro would require an EU regulation based on a proposal by the European Commission and agreed through the co-legislative process. Legislative changes would also be needed for existing legislation (e.g., under the revised Payment Services Directive). Central banks from non-euro area Member States also envisage issuing digital currencies.
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UK To Bring Stablecoins Used for Payments Under Regulation
04/04/2022
Following the call for evidence issued in January 2021, the U.K. government has confirmed that it will bring the issuing or facilitating the use of stablecoins used as a means of payment into the U.K. regulatory perimeter, in an announcement by John Glen, MP, at U.K. Fintech Week. The details were published in a response to the consultation.
Consistent with the proposals under the Future Regulatory Framework Review, the government will set the regulatory perimeter, objectives and principles and the regulators - the Financial Conduct Authority, the Bank of England and the Payment Systems Regulator - will set out the detailed requirements in rulebooks. The government also confirms that it intends to consult later in 2022 on regulating a wider set of crypto activities, including trading of cryptocurrencies such as Bitcoin and Ether.
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UK Payment Systems Regulator Highlights Potential Cyber Security Risks Arising from the Situation in Ukraine
03/01/2022
The U.K. Payment Systems Regulator has issued a statement on the situation in Ukraine. The PSR encourages firms to reflect on how they are managing their risks related to the situation, in particular:- the ability of the firm to bear an attack from a sophisticated state actor;
- whether staff are available to handle an elevated cyber risk from state sponsored and other actors; and
- implications of sanctions for third-party suppliers, and the resilience of those suppliers.
The PSR highlights the guidance issued by the National Cyber Security Centre on actions to take in response to the Ukraine situation, and it warns firms to remain vigilant of any cyber security threat. -
Financial Stability Board Publishes 2022 Work Priorities
02/17/2022
The Financial Stability Board has published a letter to G20 Finance Ministers and Central Bank Governors outlining its work priorities for 2022, which are:
- Supporting financial market adjustment to a post-COVID-19 world: the FSB observes vulnerabilities in the financial system, such as embedded leverage in some parts of the system and rising real estate and other asset valuations, which could pose risks to stability in the event of tightening financial conditions. Uneven unwinding of pandemic support measures is also a risk and the FSB will prepare an interim report in July and final report in October on policy considerations to support a more even global pandemic recovery.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Environmental, Social and Governance, Financial Services, FinTech, Payment Services -
UK Payment Services Regulator Announces Closure of Phase 1 Technical Environment for Confirmation of Payee Services
02/10/2022
The U.K. Payment Systems Regulator has announced a phase-out of the Phase 1 technical environment that enables certain U.K. payment services providers to provide confirmation of payee services. The PSR's Specific Direction 11, which comes into effect on February 11, 2022, requires existing Phase 1 CoP participants to operate within the Phase 2 technical environment from May 1, 2022. The Phase 1 technical environment will then permanently close on May 31, 2022. Phase 1 participants are expected to provide information, including their intended switchover date and a description of their progress towards achieving switchover, to Pay.UK, the body responsible for maintaining Phase 1 standards, on a monthly basis.
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Permanent Lower Threshold for Notification of Net Short Positions Under EU Short Selling Regulation Announced
01/11/2022
A Commission Delegated Regulation, published in the Official Journal of the European Union, amends the EU Short Selling Regulation to make permanent the lower notification threshold for notifying national regulators of net short positions held in the shares of companies traded on EU regulated markets. The threshold for notification will be 0.1% of the issued share capital of the company in question and each 0.1% above that. The lower threshold will apply from January 31, 2022.
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European Banking Authority Seeks to Address Divergence on Use of Strong Customer Authentication Exemption
10/28/2021
The European Banking Authority is consulting on draft Regulatory Technical Standards to amend the existing RTS on strong customer authentication and common and secure open standards of communication under the EU Payment Services Directive (known as PSD2). Responses to the consultation may be submitted until November 25, 2021.
PSD2 requires payment service providers to apply SCA each time a customer accesses their payment account online. The existing RTS govern the process by which payment service providers authenticate the identity of customers and provide exemptions to the SCA requirements. One of the exemptions is available, on a voluntary basis, when a customer accesses limited payment account information, provided that SCA is applied for the first access and at least every 90 days subsequently. The EBA is proposing to make the exemption mandatory for PSPs where the account information is accessed through an account information service provider, subject to certain conditions being met to ensure the safety of the user's data. The exemption would remain voluntary when a user directly accesses the account information. -
UK Government Sets out Key Actions to Secure Its Vision for Payments
10/11/2021
HM Treasury has published a response to the Payments Landscape Review call for evidence. The government sets out the key areas and steps for government, regulators, and industry to achieve a payments sector at the vanguard of technology and innovation.
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UK Government Proposes Measures to Protect Direct Access to Cash
07/01/2021
HM Treasury has opened a consultation on policy proposals for geographic access requirements upon designated firms to protect access to cash across the U.K. The consultation follows the Access to Cash: Call for Evidence, published in October 2020, which sought views on the considerations on how to maintain a sustainable network of retail cash infrastructure in the U.K. and support the use of cash by people and businesses over time. Responses to the consultation may be submitted until September 23, 2021.
The main proposal is the introduction of geographic requirements based on cash access (e.g. ATM) facilities being available within maximum distances of a minimum percentage of the population. Geographic parameters are already used in cash provision - LINK's ATM scheme, for example, has committed to protecting free-to-use ATMs more than 1km away from the next nearest free-to-use source of cash and protecting free access to cash on high streets that do not have a free-to-use source of cash within 1 km. The Post Office Network is obliged to ensure that 99% of the total population must be within 3 miles of their nearest Post Office and 95% must be within 1 mile. HMT's proposals for designated firms would impose minimum requirements that ensure reasonable access to withdrawal and deposit facilities for individuals and reasonable access to deposit facilities for SMEs. The government does not intend to consider further factors, such as local needs, deprivation, vulnerability, and service levels, which will be for the industry to address. Flexibility would be built in to the legislative provisions to allow the government to adjust the requirements over time.
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UK Taskforce on Innovation, Growth and Regulatory Reform Publishes Recommendations
06/16/2021
The Taskforce on Innovation, Growth and Regulatory Reform has published its report, making several recommendations for reforming the U.K.'s approach to regulation as well as practical suggestions for implementing the reforms. The main recommendation tasks the government with building a U.K. regulatory framework that has proportionality at its core and that is based on the principles of the common law. The report also provides specific proposals for regulatory reforms across several sectors, identified as high growth sectors, including the financial services sector. The TIGRR recommendations will be progressed by the newly established Brexit Opportunities Unit, which is being led by Lord Frost, Minister of State at the Cabinet Office. Consultations on proposals to implement these ambitious recommendations are expected later this year.
The TIGRR report recommends the approach to regulation is reformed along traditional common law lines, moving away from the EU codified system. The report suggests that the government reconsiders the approach to regulation with the aim of enhancing productivity, encouraging competition and invigorating innovation.
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UK Discussion Paper on Systemic Stablecoins Published
06/07/2021
The Bank of England has published a discussion paper on new forms of digital money that are potentially systemically important, focusing on systemic stablecoins. HM Treasury recently consulted on bringing certain crypto-assets into the U.K. regulatory perimeter and proposed that the BoE would regulate systemic stablecoins (under the Banking Act 2009) and that the Financial Conduct Authority would be responsible for consumer protection and conduct regulation. Feedback to the discussion paper can be submitted until September 7, 2021. The feedback will inform the BoE's next steps and it will consult on a specific regulatory framework for stablecoins, pending the finalization of the anticipated legislation.
According to the BoE, systemic stablecoins would be those that have the potential to scale up and grow rapidly and become widely used for payments by individuals and non-financial businesses. Non-systemic stablecoins would be those that are not widely used for payments and would not be subject to regulation by the BoE. Systemic stablecoins would be: (i) denominated in sterling; (ii) backed by assets that make them stable in value, unlike crypto-assets that have no safeguard, such as Bitcoin; and (iii) would not be created by lending to the real economy, unlike commercial bank money.
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Financial Stability Board Consults on Global Targets for Addressing the Four Challenges of Cross-Border Payments
05/31/2021
The Financial Stability Board has launched a consultation on proposed global targets for addressing the four challenges to cross-border payments. The G20 is prioritizing the enhancement of cross-border payments and the FSB states that public authorities have an important role to play in leveraging opportunities and addressing challenges in both existing and new arrangements supporting cross-border payments. In November 2020, the G20 endorsed the FSB's Roadmap and the related 19 Building Blocks. The Roadmap presents a high-level plan for tackling the issues and sets both short-term and longer-term goals and milestones. The Building Blocks indicate where further public and private sector work would enhance cross-border payments and address the frictions ascertained by the FSB. The consultation closes on July 16, 2021. The FSB will publish its final recommendations to the G20 in October 2021.
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European Securities and Markets Authority Issues Call for Evidence on Digital Finance
05/25/2021
Following the publication by the Commission of its Digital Finance Strategy in September 2020, the Commission has asked the European Supervisory Authorities for technical advice on the regulatory and supervisory challenges of three areas, namely the growing fragmentation of value chains in finance, digital platforms and bundling of various financial services, and groups combining financial and non-financial activities.
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