January is swiftly coming to a close and, while some of us may have failed to stick to our new year's resolutions already, it seems that the world of financial regulation has not yet fallen off the proverbial wagon or lost its enthusiasm in those areas we think will be ones to watch over the coming year…

One…

The Financial Services and Markets Bill (the FSM Bill)

At the end of 2022, the Government announced the so called 'Edinburgh Reforms' (see full details here) which outline the Government's intention to repeal and replace much of EU retained law relating to financial services and markets, with UK purpose-built measures to be introduced through the FSM Bill. Just over one month later, the Economic Secretary to the Treasury and City Minister, Andrew Griffith MP, was questioned on the reforms by the Treasury Select Committee at which he said he hoped we will see a significant amount of delivery against the set of reforms that were announced in 2022 throughout this year. Originally dubbed Big Bang 2.0, some are sceptical of the impact of these reforms, at least in certain areas. Among other things, the reforms highlight the intention to move to a 'lighter touch' ring-fencing regime following recommendations made by the Skeoch Review (undertaken in early 2021) and there is talk of reviewing the Senior Managers & Certification Regime in Q1 2023. This said, keen followers of SMCR will take this with a pinch of salt as both the FCA and PRA previously reviewed SMCR implementation in 2019 and 2020 respectively, with neither resulting in changes.

Two…

Crypto

2022's "Crypto Winter" may be legitimately described as a snowstorm that has shown no signs of thawing in 2023. Following a spate of insolvencies and regulatory and criminal enforcement action impacting the (for some dubious) trust within the market, calls for stronger regulation across the globe has increased. In the UK, the Chancellor has indicated further regulation will be provided for by the FSM Bill. With development of a 'UK Central Bank Digital Currency' on the cards, the FSM Bill is intended to create a 'safe regulatory environment' for stable coins, extend the current regulatory regimes for e-money and to bring a broader range of investment-related crypto asset activities into UK regulation. The UK Treasury and FCA have also already taken some steps to clarify their proposed position in respect of the extension of the financial promotions regime and how it will apply to certain crypto assets.

These efforts will be bolstered by the anticipated publication of HM Treasury consultations on both the general regulatory approach to crypto assets and a sovereign digital currency, which were promised "in weeks," rather than months, at the 10 January Treasury Select Committee (see recording here)). It is also expected that the Bank of England will consult in early 2023 on systematic payment systems and services that support them (e.g. wallets). One thing is for sure, crypto is not going anywhere.

Three…

Combating Financial Crime

Efforts to exfoliate financial crime from the face of the UK financial system continue to be a key focus for government and regulators, as demonstrated by the Economic Crime and Corporate Transparency Bill which is making its way through Parliament (track its progress here). Particularly notable are:

1. the expansion of criminal confiscation and civil recovery powers in Proceeds of Crime Act 2002 to allow for seizure and recovery of suspected criminal crypto assets;
2. the extension of the SFO's information gathering powers before a formal investigation is opened (in all cases, rather than just for international bribery); and
3. removing the necessity for a Suspicious Activity Report to have been submitted before the National Crime Agency’s Financial Intelligence Unit’s can make an Information Order to gain more relevant information.

Four…

Big Enforcement Energy

The FCA is due a shake up with longstanding Executive Director of Enforcement and Market Oversight, Mark Steward, due to leave the regulator in February. Whilst some may say that Mr Steward's tenure was marred by long delays, he leaves with an array of notable wins and a reputation for ensuring protection of consumers. Although there is no announcement of a successor as yet, depending on who that might be, we may see a change in enforcement approach in line with the post-Brexit desire to ensure the UK is an attractive financial services centre.

Five…

Consumer Protection Uplift

Finally, the FCA's shiny new Consumer Duty hits the shelves on 31^st July for all new products and services, and all existing products and services that remain on sale or open for renewal, with extension to all closed products and services the following year. By these dates, regulated firms must be comfortable that they are either in compliance (or have identified the gaps/areas for remediation) with their obligations to:

1. "act to deliver good outcomes for retail clients", as per the new FCA Principle 12;
2. Comply with the 'cross-cutting rules' (i.e. key behaviours to develop and amplify the standards of conduct it expects under the consumer principle): (i) to act in good faith; (ii) avoid causing foreseeable harm; and (iii) enable and support retail customers to pursue their financial objectives; and
3. Deliver the 'four outcomes': (i) quality of products and services, (ii) price and value of products and service (iii) consumer understanding and (iv) consumer support.

The implementation of the Consumer Duty is one of the most important rule changes in recent years. Unsurprisingly, the FCA is keen to ensure it is robustly implemented across the sector and recently published its review into firms' plans in this regard. It is a helpful piece that should help focus firms do more to ensure they are prepared by the end of July.