The UK has published its long-awaited Financial Services and Markets Act, including commitments to regulate stablecoins, protect access to cash and improve consumer protection from fraud.
The UK government has introduced its 330-page financial services legislation to parliament, which aims to break away from EU regulations and help ascertain the UK as a crypto-asset hub.
“Today is a landmark day for financial services in the UK,” said Nadhim Zahawi, the UK’s Chancellor of the Exchequer. “Through the introduction of this bill, we are repealing hundreds of pieces of burdensome EU regulations and seizing on the benefits of Brexit to ensure the financial sector works in the interests of British people and businesses.”
Among many plans, this bill would give the Treasury wide-ranging powers to regulate payments using so-called digital settlement assets and connected service providers.
This would include the modification of existing legislation and the modification of the definition of a digital settlement asset.
“This new legislation is vital to ensuring the UK retains its status as a world leader in financial innovation,” said David Carlisle, vice president of policy and regulatory affairs at Elliptic.
By providing a clear legal framework for stablecoins, the UK can harness stablecoins to innovate in the payments space, while ensuring financial stability and soundness, he said. “With this bill, the UK has set the pace in the global race to be at the forefront of crypto innovation.”
This bill would allow HM Treasury (HMT) to implement the first part of its proposed staged and proportionate approach, according to Katie Fry-Paul, an associate at Taylor Wessing, bringing fiat-referencing stablecoins within the regulatory perimeter through amendments to the payment services and electronic money regime.
“The provisions relating to such programmes do not yield many surprises, given previous messaging and consultation. However, they do represent a bold statement of intent as to the UK's direction of travel, which will be welcomed by the industry,” said Fry-Paul.
In what the government says will ensure that the UK remains at the forefront of new technologies and innovations, the bill will enable certain types of stablecoins to be regulated as a form of payment in the UK.
“Tech firms and innovators building in the stablecoin space will now see the UK as a clear leader in this space,” said Carlisle. “Over the next couple of years, we can expect to see companies in the stablecoin space look to the UK as a place where they’ll want to do business.”
With the EU recently agreeing on its crypto-asset regulatory framework, Carlisle said that the pressure has been on the UK to take bold, proactive steps to ensure its financial sector remains at the cutting edge of innovation.
“Increasingly, governments see crypto as an essential foundation of future jobs and economic growth, as was demonstrated by Dubai’s announcement this week to pursue economic opportunities in the Metaverse,” he said.
“It’s clear that governments no longer see crypto as a passing fad, but rather as a critical feature of future financial markets that they must work to harness now, or risk missing out on this new wave of innovation,” pointing out that all eyes will now be on the US, where bipartisan legislation on stablecoins is expected to be introduced in Congress imminently.
Earlier this year, President Joe Biden set out his administration’s vision to position the United States at the forefront of crypto innovation, but legislative action has lagged.
“With the UK and EU already out of the gates, the US will face mounting pressure to pass stablecoin legislation or face the prospect of falling behind in this rapidly accelerating race to innovate through digital assets,” cautioned Carlisle.
The bill will also enable the creation of Financial Markets Infrastructure Sandboxes, allowing firms to test the use of new technologies and practices in financial markets, increasing the efficiency, transparency and resilience of new products.
"Importantly, the bill gives HMT sufficient wiggle room to react to developments in technology and use of digital settlement assets,” suggested Fry-Paul. “Given the fast pace of change in the crypto industry, the scope for the evolution of regulation is critical to the success of any supervisory regime, both in terms of supporting innovation and protecting the public."
The bill has already garnered the seal of approval from the UK’s banking and payments lobby, UK Finance.
“We welcome the publication of the Financial Services and Markets Bill which represents a once-in-a-generation opportunity to improve regulation, enhance consumer protection and create a more competitive financial services sector,” said David Postings, chief executive.
Ensuring the sector is successful will allow it to continue to support jobs, investment and growth up and down the country, he continued. “The UK is renowned for its high regulatory standards and this bill rightly ensures these are maintained. It also sends a clear signal to the rest of the world that the UK is open for business by assigning regulators a secondary competitiveness objective.”
Consumer protections
As well as introducing crypto-related regulation, part of the plans put forward focus on consumer protection, with the legislation including measures that will safeguard access to cash for future generations, as well as powers to enable the Payments Systems Regulator (PSR) to direct banks to reimburse victims of authorised push payment (APP) fraud.
The legislation also establishes a new regulatory pathway for firms to be able to approve financial promotions, ensuring they better reflect FCA rules which state that promotions should be fair, clear and not misleading.
Consumer interest group Which? tentatively welcomed the new commitments.
“It’s good to see the government moving quickly on this important legislation,” said Rocio Concha, policy and advocacy director at Which?. “It will pave the way for protection of access to cash for millions of people who rely on it and give reassurance to consumers that they will have greater protection against suffering significant losses if they fall victim to a bank transfer scam.”
This is a wide-ranging bill, she added. “Which? will be scrutinising the legislation closely to ensure that adequate consumer protections are in place, and is ready to work with the government and regulators as this bill progresses through parliament.”