The new Financial Services and Markets Bill: what's up for debate?

Parliament is in its summer recess, and so is the Financial Services and Markets Bill. When the summer is over, the Bill will start its Report stage in the House of Lords. We already have a good idea of some of the issues that are likely to be raised as it continues its journey through the legislative process.

What’s happened so far?

To recap, the Bill was introduced in the Lords on 19 May, and has been through its first two readings, and 6 days of Committee, during which several amendments were proposed, discussed and, as is often the case at this stage in the process, withdrawn.

The Bill plans several disparate changes, mainly around:

• Consumer credit – to repeal much of the CCA and replace it with modernised rules under the FCA's control;
• Maintenance of access to banking services;
• Reform of the redress system, including FOS powers and how it works with the FCA;
• Consumer redress schemes;
• Consolidation of regulators – bringing the Payment Systems Regulator and anti-money laundering supervision of professional firms within the FCA;
• Functions, accountability and reporting of the regulators;
• The appointed representative principal permission regime;
• The temporary permission or provisional licence regime;
• SMCR changes including repeal of the certification regime and changes in regulatory notifications;
• Overseas and Gibraltar firms;
• Loosening of some ring-fencing restrictions;
• Enhancing the commercial credit data sharing scheme;
• Updating the current regimes in relation to transformer and insurance vehicles; and
• New powers around cryptoasset regulation.

Some of the provisions are fairly uncontentious and led to no significant debate during Committee stage. Others, though, took up quite a bit of time and have led to proposals for amendment which, as at 23 July, run to 20 pages.

Proposed amendments

Consumer credit

Broadly, everyone agrees that the consumer credit regime is outdated and needs modernisation. However, there is concern that the Bill seeks to allow for repeal of much of the current CCA without knowing what the FCA is going to put in the place of the repealed law. Amendments propose safeguards that will ensure the overall level of consumer protection is at least maintained.

Access to affordable credit

One amendment suggests a new clause that requires the FCA to put in place a framework to assess and rate firms on their provision of affordable credit.

Tech company liability for fraud

There is appetite for requiring tech companies on whose service an APP fraud has been initiated, facilitated or communicated to bear their fair share of reimbursement.

Transfer of AML supervisory responsibility

Amendments call for more clarity on when and how the FCA is to take over direct supervision of AML compliance of professional services firms, and how the firms can clearly see how FCA supervision and guidance will differ from what they currently follow.

Regulatory strategy

One proposed amendment sets a minimum content requirement for FCA and PRA strategy documents, similar to what is expected from listed companies, while others look to maintain the levels of regulatory information available to Parliament about the regulators' work.

Ring-fencing

Amendments propose controls over the PRA's powers in relation to ring-fenced institutions, specifically to assess whether current law and regulation caters appropriately for ring-fenced bodies owned by overseas groups.

Digital assets

To drive forward digital asset progress, there is a suggestion that HM Treasury should be required to prepare a strategy for regulating and developing digital assets and the appropriate infrastructure.

Other contentious issues

There's still time for more amendments to be proposed, ad we can probably expect them in relation to some matters which were the subject of lively debate during the Committee stage. Among the issues debated but not currently reflected in proposed amendments are:

FOS reform and the limitation period

There was significant discussion around the proposal to increase the limitation period for complaints to the FOS and the uncertainty that this might bring. It was agreed that the reforms must get the balance right between protecting consumers, and not creating either too much power for the FCA or too much uncertainty for firms. The FCA referral process also led to significant discussion as did the proposal to clarify the "fair and reasonable" test.

Banking hubs

The Committee debated the right balance between face-to-face access to banking hubs against the practical realities of their use, and what the correct regulatory actions should be.

Private credit

The Government acknowledged that private credit has brought benefits to the real economy but that it also has vulnerabilities – and discussed the overall work that regulators are doing to identify and address risks.

Regulatory objectives – climate risk

The Committee discussed whether climate risk and associated harms should be something to which the PRA and FCA should "have regard" – against the Government's assertion that these risks are already catered for.

Financial inclusion

Many Lords called for the establishment of a financial inclusion principle with regulatory requirements to report on progress.

Regulatory powers generally

A theme running through the debate was the extent to which, once a provision is removed from law and given to regulators to deal with, parliament loses control. This was discussed both generally and on specific items, such as the setting of approval periods. There was lively debate on use of "stop the clock" powers.

Section 166 reviews

Industry has often noted that the regulators are using their s166 powers increasingly often, and any request causes significant burdens on firms – who are sometimes not even clear what is being asked of them. So there is a call for a consideration of proportionality before the regulators can impose a s166.

Resilience

One proposal focussed on the need for firms to be digitally and technologically resilient, and there was a debate on whether adding an extra layer of regulation was the right way to address this.

Litigation funding

The issue of how best to regulate litigation funding remains unsolved, with one possibility being to include it as a new regulated activity.

What next?

The Report stage is scheduled to start on 7 September. Once that is over, the Bill will have its third reading in the Lords, before it passes over to Parliament to go through the same process that started in the Lords back in May. Then both houses need to consider and agree amendments before the Bill becomes law.

So there is a long way to go, and many debates still to be had, and meanwhile the regulators are preparing for change.