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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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.
Read more. -
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 -
HM Treasury Publishes Response to Consultation on Managing Failure of Systemic Digital Settlement Asset Firms
11/03/2023
HM Treasury has published a response to its consultation on managing the failure of systemic digital settlement asset firms. DSAs are defined broadly under the Financial Services and Markets Act 2023 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. The FSM Act (discussed in our client note, A Boost for UK Financial Services) granted HM Treasury powers to supervise certain activities related to DSAs. This included the power to apply the Financial Market Infrastructure Special Administration Regime to systemic DSA firms (other than banks, which are covered by existing regulatory frameworks).
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Financial Market Infrastructure, FinTech, Recovery & Resolution -
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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UK Jurisdiction Taskforce Publishes Consultation on Digital Assets and Insolvency Law
10/20/2023
The U.K. Jurisdiction Taskforce has published a consultation relating to its proposed Legal Statement offering guidance on the application of English insolvency law principles to digital assets. The proposed Legal Statement will cover a range of areas which are listed in an Annex to the paper. Respondents are invited to submit comments on these areas, which include: (i) whether digital assets would constitute "property" under English insolvency legislation; (ii) which jurisdictional rules apply to determine the location of digital assets; and (iii) whether any difficulties can be perceived in applying English insolvency legislation to the avoidance of prior transactions to pre-insolvency dealings with digital assets. In addition, respondents are encouraged to inform the UKJT of any material issues of concern to stakeholders in relation to the application of English insolvency law to digital assets, other than those listed in the paper's Annex. Responses should be submitted by December 4, 2023.
The consultation paper follows a series of other publications by the UKJT on legal issues surrounding digital assets, including its Statement on the Issuance and Transfer of Digital Securities under English Law, published in February 2023. -
EU Authority Seeks Feedback on Potential Shorter EU Settlement Cycle
10/16/2023
The European Securities and Markets Authority has opened a call for evidence on shortening the settlement cycle in the EU. The existing EU settlement cycle for trades in transferable securities executed on trading venues is by no later than the second business day after the trade takes place, known as T+2. Responses to the call for evidence may be submitted by December 15, 2023. ESMA will report to the European Commission during 2024, although an earlier report may be produced if ESMA considers that regulatory action is needed in response to the move to T+1 or T+0 in other jurisdictions.
ESMA is asking for feedback from financial market participants on the impact on their operations of a reduced securities settlement cycle to T+1 or T+0, what benefits and costs it would bring, and how and when a shorter settlement cycle could be achieved. ESMA considers that the EU landscape is more complex than that in other jurisdictions because there is no centralized EU post-trade financial markets infrastructure and no harmonized securities law. Finally, ESMA seeks input on the impact of developments in other jurisdictions, such as the intended move by the U.S. and Canada to T+1 in mid-2024 and the U.K.'s assessment of changing to T+1 or T+0, an initial report on which is expected by the end of this year (announced as part of the Edinburgh Reforms which are discussed in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services").ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, Securities -
UK Financial Conduct Authority Publishes Policy Statement on Financial Promotions Gateway
09/20/2023
The U.K. Financial Conduct Authority published a Policy Statement on 12 September 2023 setting out how it intends to implement the new regulatory gateway for financial promotions. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services") amends the Financial Promotion Restriction, banning authorized firms from approving financial promotions of unauthorized firms unless they have received approval from the FCA to have the prohibition removed in whole or part. The gateway will apply from February 7, 2024, with authorized firms able to apply to the FCA for permission from November 6, 2023 until February 6, 2024. There are exemptions from the gateway, entering into force on September 27, 2023, which permit the approval of financial promotions by authorized firms, for communication by unauthorized firms, in certain circumstances.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Consumer Protection, Financial Services, FinTech -
UK Joint Money Laundering Steering Group Publishes Guidance on Travel Rule for Cryptoasset Exchange Providers and Custodian Wallet Providers
09/14/2023
The Joint Money Laundering Steering Group has published revisions to its Sector 22 Guidance on Cryptoasset exchange providers and custodian wallet providers along with a new Annex I, setting out guidance on the U.K. Travel Rule for cryptoassets. The Travel Rule was introduced under the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and requires certain identification information on the sender and recipient to accompany a transfer of a cryptoasset. The Travel Rule requirements have applied since September 1, 2023.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : AML/CTF, Insider Trading and Sanctions, Financial Market Infrastructure, FinTech -
Proposed Global Policy Recommendations for Decentralized Finance
09/13/2023
On September 7, 2023, the International Organisation of Securities Commissions launched a consultation on proposed policy recommendations on market integrity and investor protection issues in decentralized finance (DeFi). IOSCO is proposing that the final recommendations, which it aims to finalize before the end of 2023, will help IOSCO members to establish compliant markets. Responses to the consultation may be submitted until October 19, 2023.
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UK Conduct Regulator Offers Small Reprieve for Cryptoasset Marketing
09/13/2023
The U.K. Financial Conduct Authority announced on September 7, 2023, that firms may avail themselves of a delay to the application of some rules applying to cryptoasset financial promotions. The FCA published rules for cryptoasset financial promotions in June this year, which will apply from October 8, 2023 (the same date that the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 brings the promotion of cryptoassets within scope of the U.K. regulatory regime). The reprieve is available, on application, to:- firms registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 that intend to communicate cryptoasset financial promotions; and
- authorized firms that intend to communicate or approve cryptoasset financial promotions.
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Exemptions from UK Financial Promotions Gateway Published
09/11/2023
The Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023, which come into force on September 27, 2023, set out the exemptions to the new U.K. regulatory gateway for the approval by authorized firms of financial promotions of unauthorized firms. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") amends the Financial Promotion Restriction, banning authorized firms from approving financial promotions of unauthorized firms unless they have received approval from the Financial Conduct Authority to have the prohibition removed in whole or part. The prohibition will apply from February 7, 2024, according to the Financial Services and Markets Act 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023, which also set out the following timeline for the new regime to come into effect:- September 6, 2023: provisions will apply that enable the FCA to give directions and guidance and to make rules.
- November 6, 2023: provisions will apply that allow the FCA to receive (but not determine) applications to approve financial promotions that are made during the application period (November 6, 2023 to February 6, 2024).
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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 First Financial Market Infrastructure Sandbox – the Digital Securities Sandbox
08/07/2023
HM Treasury has published a consultation on the establishment of a financial market infrastructure sandbox, known as the Digital Securities Sandbox. The sandbox will be established using new powers granted by the U.K. Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for UK Financial Services"), empowering HM Treasury to set up individual FMI sandboxes. The sandboxes are designed to enhance understanding of the use cases for emerging digital asset technologies, including distributed ledger technology. HM Treasury can modify or disapply legislation and rules within the sandbox to permit different technologies to be tested that would not be possible under the existing legislative and regulatory framework, with the potential to make permanent changes to legislation based on the findings of the sandbox.
Read more.ATTORNEYS: Barnabas W.B. Reynolds, Chloe Barrowman
TOPICS : Brexit for Financial Services, Financial Market Infrastructure, FinTech, Securities -
UK Statutory Instrument Published to Bring Cryptoassets Within Financial Promotions Regime
06/12/2023
On June 7, 2023, the U.K. government published a statutory instrument (the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FP (Amendment) Order) and related explanatory memorandum) amending the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO). The amendments broadly reflect HM Treasury's final proposals on cryptoasset financial promotions, published in January 2022. The expanded financial promotions regime will apply from October 8, 2023, an implementation period of four months as opposed to the originally proposed six, given recent market volatility. The new regime will capture promotions for "qualifying cryptoassets" with respect to the following (existing) controlled activities:- dealing in securities and contractually based investments;
- arranging deals in investments;
- managing investments;
- advising on investments; and
- agreeing to carry on any of the above activities.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman, Sandy Collins
TOPICS : Consumer Protection, FinTech, Securities -
UK Financial Conduct Authority Publishes Final Rules on Cryptoasset Financial Promotions
06/12/2023
On June 8, 2023, the U.K. Financial Conduct Authority published its final Policy Statement setting out detailed rules for the U.K.'s cryptoasset financial promotions regime. The Policy Statement follows the publication on June 7, 2023 of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FP (Amendment) Order), which will bring the promotion of certain cryptoasset activities within the U.K.'s financial promotions regime. The FCA's rules will apply from October 8, 2023 (the same date that cryptoassets are brought within the financial promotions regime under the FP (Amendment) Order).
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman, Sandy Collins
TOPICS : Consumer Protection, FinTech, Securities -
Proposed Policy Recommendations for Crypto and Digital Asset Markets
06/05/2023
On May 23, 2023, the International Organisation of Securities Commissions launched a consultation on proposed policy recommendations for crypto and digital asset markets. IOSCO is proposing that the final recommendations, which it expects to publish in Q4 2023, will help IOSCO members to apply the IOSCO Objectives and Principles for Securities Regulation to crypto asset activities. Responses to the consultation may be submitted until July 31, 2023.
IOSCO is proposing 18 recommendations that cut across the following areas:- Conflicts of interest arising from vertical integration of activities and functions.
- Market manipulation, insider trading and fraud.
- Cross-border risks and regulatory cooperation.
- Custody and client asset protection.
- Operational and technological risk.
- Retail access, suitability and distribution.
The proposed recommendations do not cover decentralized finance activities, products or services. IOSCO will consult on recommendations for DeFi activities later this year. -
UNIDROIT Publishes Principles on Digital Assets and Private Law
06/05/2023
On May 18, 2023, the International Institute for the Unification of Private Law (UNIDROIT), the intergovernmental organization for modernizing and coordinating private law, published a set of draft Principles on Digital Assets and Private Law. The 19 Principles provide high-level guidelines with which States (including UNIDROIT Member States) would be encouraged to align their own legislation on digital assets. The U.K., U.S. and EU Member States are among the members of UNIDROIT. The Principles have been designed to be neutral as to jurisdiction, technology and their manner of implementation, making them flexible and easy to incorporate into national legal systems. If the draft Principles are accepted by UNIDROIT's Governing Council, they are expected to be finalized and published in 2023.
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Proposed EU Regulation on Markets in Crypto-Assets Approved by European Parliament
05/02/2023
On April 20, 2023, the agreed text of the proposed European Markets in Crypto-Assets Regulation was given final approval by the European Parliament. The Regulation is intended to improve legal certainty in the regulatory treatment of crypto-assets, to preserve consumer protection and market integrity in crypto-asset markets and to ensure financial stability. The text must now be formally endorsed by the Council of the European Union and will then be published in the Official Journal of the European Union. It will enter into force 20 days after publication. The majority of the Regulation is expected to apply from around January 2025, with the exception of the provisions regarding asset-referenced token issuers and e-money token issuers, which should apply from around July 2024.
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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 Legal Statement on the Issuance and Transfer of Digital Securities under English Law
02/28/2023
Following its consultation in 2022, on February 9, 2023 the U.K. Jurisdiction Taskforce published a Legal Statement on the issuance and transfer of digital securities under English private law.
Digital securities are shares, bonds and other debt securities which are constituted by reference to a blockchain or distributed ledger. English law is commonly used as the governing law of choice for conventional debt securities in international markets. Seeking to provide legal certainty on the use of digital securities, the Legal Statement concludes that English law can support the issuance and transfer of digital bonds on a public blockchain without custodians, and the on-chain transfer of digital equity securities.
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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". -
Bank of England Publishes Consultation Paper on Digital Pound
02/08/2023
The Bank of England has published a joint consultation paper with HM Treasury on the possibility of a digital pound in the U.K. It is envisaged that the digital pound would be a retail central bank digital currency, to be used in day-to-day payments by individuals and businesses. It would operate alongside, instead of replacing, cash. The BoE has also published a Technology Working Paper that explores the technological requirements of a U.K. CBDC. At this stage, the BoE is seeking input on the need for the digital pound and its early-stage proposals for the currency's form and function. As in previous communications on the subject, the BoE and HM Treasury emphasize that no decision has been made on whether to introduce a U.K. CBDC. The introduction of a CBDC would take years to implement, with the design phase expected to last until 2026. Responses to the consultation and Technology Working Paper should be submitted by June 7, 2023.
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Edinburgh Reforms: Changes to the Laws of the UK Financial Services Sector
12/09/2022
The U.K. Government has announced on a series of initiatives, billed as the Edinburgh Reforms, to reform the laws for the U.K. financial services sector. The proposals cover:- Reforms to Ring-Fencing Regime;
- Implementation of Post-Brexit Financial Regulatory Framework;
- Growth and Competitiveness Remit for U.K. Regulators;
- Reforms to Wholesale Markets;
- Faster Settlement;
- Senior Manager's and Certification Regime;
- Changes to Promote Investment and Growth in Financial Services;
- Sustainable Finance;
- FinTech and Digital Assets; and
- Consumer Credit.
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UK Financial Conduct Authority Consults on Regulatory Perimeter Guidance for Trading Venues
09/22/2022
The U.K. Financial Conduct Authority has published a consultation paper on proposed guidance on the regulatory perimeter for multilateral trading facilities and on possible future changes to smaller trading venues' regulatory obligations. The FCA's consultation follows proposals made in HM Treasury's July 2021 U.K. Wholesale Markets Review, the response to which was published in March 2022. Responses to the FCA's consultation should be submitted by November 11, 2022. The FCA plans to finalize the draft guidance and publish a policy statement in Q2 2023.
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UK Conduct Regulator Publishes Policy Statement on Improvements to Appointed Representatives Regime
08/03/2022
The U.K. Financial Conduct Authority has published a Policy Statement and final rules on improvements to the Appointed Representatives regime. The AR regime allows authorized firms to appoint representatives to conduct certain regulated activities on their behalf. The FCA consulted on proposed changes to the regime in December 2021. The changes will take effect from December 8, 2022, although there is a transitional period for some of the rules (e.g., those relating to on-going submission of information and annual self-assessments), giving firms longer to comply. Principal firms will be required to provide data on their existing ARs within 60 days of the rules coming into force – the FCA will be sending out section 165 requests for information towards the end of 2022.
Read more.ATTORNEYS: Thomas Donegan, Chloe Barrowman
TOPICS : Conduct & Culture, Corporate Governance, FinTech -
UK Jurisdiction Taskforce Publishes Consultation on Transfer of Digital Assets
08/01/2022
The U.K. Jurisdiction Taskforce has published a consultation on the issuance and transfer of "digital securities" under English law. Digital securities are shares, bonds and other debt securities which are constituted by reference to a blockchain or distributed ledger. English law is commonly used as the governing law of choice for conventional debt securities in international markets, but a question arises as to whether English law can support the issuance and transfer of digital securities. The UKJT intends to publish a legal statement on the subject in December 2022.
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Stricter UK Financial Promotion Rules Going Ahead
08/01/2022
The U.K. Financial Conduct Authority has published its final Policy Statement and Rules on financial promotions of high-risk investments and firms approving financial promotions. Many of these changes address or build upon recommendations of the Gloster Report or are otherwise related to the fallout from the London Capital & Finance plc scandal. The rules on risk warnings for financial promotions of high-risk investments will apply from December 1, 2022, and all other rules will apply from February 1, 2023. The FCA's related guidance (which is included in Annex 2 of the Policy Statement) will also apply from February 2023.
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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 Financial Conduct Authority Publishes Final Rules and Guidance for New Consumer Duty
07/27/2022
The U.K. Financial Conduct Authority has published its final rules and guidance for the new Consumer Duty, which is intended to establish clearer standards for consumer protection across the financial services industry. The FCA conducted two consultations, one in May 2021 and another in December 2021 (following its earlier Discussion paper and Feedback Statement in 2018/2019). The final rules and guidance take account of the feedback received to those consultations.
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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 -
International Bodies Confirm Application of Principles for Financial Market Infrastructures to Systemically Important Stablecoin Arrangements
07/13/2022
The International Organization of Securities Commissions and the Committee on Payments and Market Infrastructures have published guidance on the application of the Principles for Financial Market Infrastructures to systemically important "stablecoin arrangements" that are considered to be systemically important FMI and that have a transfer function. "Stablecoin arrangements" combine a range of functions e.g., issuance, transfer, storage and exchange of coins that purport to be used as a means of payment and/or a store of value. The various functions may be performed by a single entity or may be unbundled and offered by a range of entities. According to the guidance, systemically important stablecoin arrangements that have a transfer function (i.e., facilitate the transfer of crypto tokens between users) should be considered to be systemically important FMIs and therefore subject to the PFMIs. Other types of stablecoin arrangement may be captured by CPMI/IOSCO principles, for example, stablecoin arrangements that are primarily used for making payments should adhere to the principles for payment systems. However, the current guidance only relates to stablecoin arrangements which perform transfer functions.
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UK Treasury Commitee Publishes Inquiry Into Crypto-Assets
07/13/2022
The UK Treasury Commitee has launched an inquiry into the role of crypto-assets in the U.K. and their regulatory framework. The inquiry poses questions on a range of subjects, including the likelihood of digital currencies (e.g., stablecoins) replacing traditional fiat currencies, the risks and opportunities posed by crypto-assets and the environmental implications of crypto-asset technology, as well as a range of questions on the optimal approach to regulation for the industry. Responses should be submitted by September 12, 2022. The inquiry comes in the wake of another period of volatility in the crypto markets, which has drawn attention to some of the risks of investing in these products.
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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. -
EU Consultation on Guidelines for Applications to Operate DLT Market Infrastructures under the EU Pilot Regime
07/11/2022
The European Securities and Markets Authority has launched a consultation on proposed guidelines on standard forms, formats and templates to apply for permission to operate distributed ledger technology for market infrastructure. The EU Regulation on a pilot regime for DLT market infrastructures will permit certain DLT market infrastructures to operate with exemptions from some elements of otherwise applicable EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The DLT Regulation sets the conditions for operating a DLT multilateral trading facility (DLT MTF), DLT settlement system (DLT SS) and DLT trading and settlement system (DLT TSS), and will, for the most part, apply from March 23, 2023. ESMA is consulting on proposed guidelines on:- the minimum instructions that national competent authorities should provide to market participants for submitting their applications; and
- the method that applicants should use to provide the requested information and documents to their competent authorities.
Responses to the consultation may be submitted until September 9, 2022. ESMA will consider the feedback and intends to publish the final guidelines before the DLT Regulation applies.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Financial Market Infrastructure, FinTech, MiFID II -
Basel Committee on Banking Supervision Consults Further on Capital Requirements for Banks' Exposures to Crypto-Assets
06/30/2022
Following its consultation last year, the Basel Committee on Banking Supervision has launched a second consultation on bank prudential requirements for exposures to crypto-assets. The first consultation set out a preliminary proposal for the prudential treatment of crypto-assets, based on feedback to the 2019 discussion paper and other input from stakeholders. This second consultation proposes revisions to the initial proposals based on the feedback received and sets out proposed minimum standards based on the principle of "same risk, same activity, same treatment". Responses to the consultation may be submitted until September 30, 2022. The Basel Committee intends to publish final standards before the year-end; standards may be stricter than those presented in this consultation if feedback indicates any deficiencies.
The Basel Committee is maintaining its approach of adopting different prudential treatments 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 will be subject to the existing Basel framework. Group 2 crypto-assets are those that do not meet the conditions and are therefore deemed to present additional and higher risks than Group 1 crypto-assets. Group 2 crypto-assets will be subject to an adapted prudential regime, with netting and a 100% capital charge. Group 1 and Group 2 crypto-assets could be tokenized crypto-assets and stablecoins; Group 2 could also include unbacked crypto-assets.
Read more.ATTORNEYS: Thomas Donegan, Sandy Collins
TOPICS : Bank Prudential Regulation & Regulatory Capital, FinTech -
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 -
EU Distributed Ledger Technology Pilot Regime Published
06/02/2022
The EU has published in the Official Journal of the European Union its Regulation on a pilot regime for market infrastructures based on distributed ledger technology. The pilot regime will permit certain DLT market infrastructures to operate with exemptions from some EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The regime is intended to promote legal certainty, support innovation, preserve market integrity and ensure financial stability for the use of DLT in crypto-asset and e-money token markets.
Read more.ATTORNEYS: Chloe Barrowman, Thomas Donegan
TOPICS : Cyber Security, Financial Market Infrastructure, FinTech, MiFID II -
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 -
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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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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European Banking Authority Publishes Report on Non-Bank Lending Sector
05/04/2022
The European Banking Authority has published a report on the EU non-bank lending sector i.e., the growing number of financial intermediaries operating outside the EU financial services regulatory perimeter, including BigTech firms (e..g, Meta, Amazon and Google) and FinTech firms, which develop innovative technology for financial services.
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