Fintech, digital assets, payments and consumer credit | UK Regulatory Outlook April 2023
Published on 27th Apr 2023
Green Finance Strategy 2023 | Bringing cryptoasset promotions within the financial promotions regime | PRA publishes policy statement on depositor protection
Green Finance Strategy 2023
On 30 March 2023, the UK government published the 2023 Green Finance Strategy. It sets out how the government will ensure that necessary finance flows to the UK's net zero, energy security and environmental industries. In this Insight, we highlight the key elements of the government's strategy that investment fund and asset managers should be aware of.
HMT consults on future regulatory regime for ESG ratings providers
On 30 March 2023, HM Treasury published a consultation paper on the future regulatory regime for environmental, social and governance (ESG) ratings providers. The consultation sets out a proposed policy approach for bringing ESG ratings providers into the UK regulatory perimeter, as part of the government's updated Green Finance Strategy. The deadline for responses to the consultation is 30 June 2023.
HM Treasury proposes to extend the regulatory perimeter to include ESG ratings by creating a new regulated activity: the direct provision of an assessment of environmental, social or governance factors to a user in the UK, where the assessment is used in relation to a specified investment in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, unless an exemption applies. This would mean ESG ratings providers requiring authorisation from the UK Financial Conduct Authority (FCA). See our recent Insight for more on the FCA and ESG benchmarks.
Bringing cryptoasset promotions within the financial promotions regime
On 27 March 2023, HM Treasury published a draft of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023, along with a draft explanatory memorandum.
The draft proposes to expand the scope of the restriction on financial promotions to include financial promotions in respect of certain cryptoassets. Please see our Insight on this for more detail.
PRA publishes policy statement on depositor protection
On 31 March 2023, the Prudential Regulation Authority (PRA) published a policy statement (2/23) which confirmed its position on amendments to the depositor protection rules.
These amendments clarify that the Financial Services Compensation Scheme (FSCS) depositor protection regime covers FSCS-eligible customers of e-money institutions, authorised payment institutions, small payment institutions, and credit unions (in respect of e-money) should a credit institution holding such firms' safeguarded funds fail.
The changes came into effect on 12 March 2023.
ECB article on need for better oversight of crypto activities
On 5 April 2023, the European Central Bank (ECB) published a blog post "Mind the gap: we need better oversight of crypto activities" by Elizabeth McCaul, ECB Supervisory Board Member, on oversight of crypto activities, in which she considers lessons learnt from recent events in financial markets.
Ms McCaul comments on gaps in the regulatory framework when it comes to cryptoassets. While the Financial Stability Board and the Basel Committee on banking supervision have acknowledged the need for a global regulatory and supervisory framework for cryptoassets, this project is in its infancy.
In the context of cryptoassets, the very concept of borders and jurisdictions is being challenged, raising the question of how businesses with no physical borders can be supervised. More thought needs to be put into imagining what international co-ordination will look like and how it can be effective in regulating this sector.
The integration of cryptoassets into the financial system remains negligible compared with the overall size of the banking sector. However, contagion can spread both ways, from cryptoasset markets to banks and vice versa. The nature and scale of cryptoasset markets are rapidly evolving and could reach a point where they represent a potential threat to global financial stability.
Ms McCaul is concerned that the EU Markets in Crypto-Asset Regulation, while a step in the right direction, may not be sufficient to regulate cryptoasset markets on its own. She also refers to the Basel Committee on Banking Supervision's standards for the prudential treatment of cryptoasset exposures. Although not yet legally binding in the EU, the ECB expects that banks intending to engage in cryptoasset activities will comply with these standards and take them into account in their business and capital planning.
Stricter EU AML rules for cryptoasset service providers
On 28 March 2023, the European Parliament's Economic and Monetary Affairs Committee (ECON) adopted its position on the proposed anti-money laundering and counter-terrorism financing legislative package published by the European Commission in July 2021. One of the key elements of the amendments voted in the ECON committee is an introduction of much stricter anti-money laundering and countering the financing of terrorism rules for crypto-market participants.
Following formal approval of the ECON position by the European Parliament, trilogue negotiations will begin, leading to the adoption of the final text. These are expected to begin under the leadership of the current Swedish Presidency of the Council, but are unlikely to conclude during its term.
Government publishes Economic Crime Plan 2 for 2023-2026
Please see Bribery, fraud and anti-money laundering.
Changes to Money Laundering Regulations 2017 come into force
Please see Bribery, fraud and anti-money laundering.