The Financial Services and Markets Bill (“the Bill”) is now in its consideration of amendments stage, the final legislative phase before being presented to the King for Royal Assent. The Bill’s 300 pages address a wide variety of issues, including but not limited to:
- Revocation of EU laws such as MIFIR, AIFMD and the UCITS Directive, each to be replaced by a UK-specific version
- Revisions to retained EU law
- The introduction of a framework to allow stablecoins to be used for payment
- A new recovery and resolution regime for insurers and CCPs
- A new regulatory gateway to govern the authorised firms’ approval of unauthorised firms’ financial promotions
- A new framework to designate critical third parties
- Regulating Buy Now Pay Later products
These and other highlights, while important, are only of tangential interest to a firmly SM&CR focused readership. There are however, a number of items in the Bill that are worth noting in this regard.
The Bill extends the Bank of England’s powers to impose the SM&CR on Central Clearing Counterparties (“CCPs”) and Central Security Depositaries (“CSDs”) and explicitly rules that the regime will be applied to these entities. In similar fashion, the Bill updates the FCA’s powers granting it oversight of authorised Credit Rating Agencies (“CRAs”) and Recognised Investment Exchanges (“RIEs”). HMT is granted the power to impose the SM&CR on CRAs and RIEs, if it deems it appropriate following industry consultation. It’s a fairly safe bet that such appropriateness will be deemed. The Bill’s extension of the SM&CR should be read in conjunction with the FCA’s latest perimeter report which advocated for the inclusion of CRAs, RIEs as well as payments and e-money firms under the regime’s umbrella.
While the number of new SM&CR entrants is not large, approx. 44 if payment firms are included, this does represent a significant widening of the regime’s scope. For the first time, the SM&CR will bite upon financial market infrastructure, as well as those more directly involved in financial markets.
It is perfectly logical that if financial markets should be subject to a legislative regime, then so should the infrastructure that supports them. Malfeasance at a large CCP for example could result in at least as much economic and social damage as similar behaviour at a large bank.
While the above is clearly of interest to senior managers at CRAs and CCPs, it is also relevant for the many smaller firms that comprise the Core SM&CR population. The much heralded, though imprecisely detailed, “Edinburgh Reforms” promised some sort of revision to the SM&CR. HMT duly published a consultation on the regime’s efficacy with regard to the Senior Manager Regime, Certification and Conduct Rules. The consultation closed on 1 June, the industry is eagerly awaiting its results. Whatever conclusions may be drawn and may or may not be acted upon, the Bill’s extension of the SM&CR to market infrastructure underlines the centrality of the regime to financial and now “para-financial” regulation.
In short, for those hoping that SM&CR obligations may be reduced, the clear direction of travel is further embedding and enlargement.