What does the Financial Services Bill mean for business?

Financial services matter, both for the whole economy and in their own right. It is an essential enabling industry, from helping to manage risks, pay wages, and enable payments to be made. The UK is home to a world-leading financial industry, driving innovation in products and services, including in sustainable finance and FinTech. With the UK forging a new role in the world, Parliament alongside independent regulators, will have a critical role in shaping the future regulatory framework for financial services.

The Financial Services Bill was introduced to Parliament on 21 October 2020. The bill is the first step to ensure the UK's regulatory framework for financial services continues to function effectively now that the UK has left the EU, and is designed to enhance competitiveness of the sector and ensure UK customers are protected.

The measures established in this bill can be grouped into three sections:

Enhancing the UK’s world-leading prudential standards and promoting financial stability

• Enables the implementation of Basel III standards. The UK played an active role in agreeing Basel III and this bill will ensure HMT and the UK regulators can implement the remaining Basel standards into the UK prudential framework
• Enables a new prudential regime for investment firms. The current regulatory framework for investment firms can be disproportionate and pose unnecessary compliance burdens, and the bill will allow the FCA to introduce a tailored Investment Firms Prudential regime to address these issues
• Gives the FCA the powers it needs to oversee an orderly transition away from LIBOR. The bill will clarify and extend the FCA’s set of powers to ensure the orderly wind-down of the critical LIBOR benchmark.

Promoting openness between the UK and international markets

• Simplifies the process to market overseas investment funds in the UK. This measure will introduce new equivalence regimes for retail investment funds and money market funds, which will simplify the process for investment funds that are domiciled overseas to market to UK consumers
• Provides long-term access between the UK and Gibraltar for FS firms
• Updates the MiFIR regime following an equivalence decision. The bill will provide the FCA with a power to specify reporting requirements for firms that register under the equivalence regime.

Maintaining sound capital markets

• Measures to improve the functioning of the Packaged Retail and Insurance-based Investment Products Regulation
• Increases penalties for market abuse. The bill makes two amendments to the Market Abuse Regulation intended to strengthen the regulation, and reduce the administrative burden associated with compliance.

Access the Financial Services Bill

Further details on the measures will be published in due course through policy statements and consultations. The amendments to the Benchmarks Regulation to support LIBOR transition can be found here.

The CBI has consistently argued for smarter regulation that puts customers first, embraces innovation and maintains a global horizon. As the industry looks at the role of EU regulation and the role of the UK in the global landscape, government and regulators will need to work better with the global financial services industry to avoid the unintended consequences of regulation. This can be done by:

• Remaining committed to a leading role to keep the UK at the centre of financial services regulatory and taxation policy at the global level
• Continuing engagement in international dialogues to ensure UK financial services firms can embrace global challenges
• Ensuring government, regulators and financial services actively promote international regulatory cooperation to reduce inconsistency and associated inefficiencies.

The Financial Services team will follow these developments closely in the coming months. Please get in touch with Ana Gallego if you would like to discuss this further.