UK Financial Services Act 2021 Receives Royal Assent

On 29 April 2021, the Financial Services Bill received Royal Assent in the UK, becoming law as the Financial Services Act 2021 (the “Act”). This is the first significant step for the UK in shaping its financial services regulatory framework following transition out of the European Union (“EU”), with HM Treasury affirming last week that the Act “will ensure the UK remains an open and dynamic financial centre, with the highest regulatory standards, and protect people across the UK as they use financial services”. 

The Act makes extensive amendment to the current regime, including reforms in relation to the following matters:

• The introduction of a new prudential regime for credit institutions and investment firms and the implementation of the remaining Basel III standards;
• The provision of additional powers for the Financial Conduct Authority (“FCA”) to ensure a smooth transition away from the LIBOR benchmark;
• A simplification of the process enabling overseas investment funds to be marketed in the UK and a commitment to ensure long-term access between the UK and Gibraltar;
• A requirement for the FCA to consult on whether it should make general rules providing that authorised persons owe a duty of care to consumers. The FCA’s analysis of the responses to this consultation must be published by 1 January 2022, with any final rules to be made by 1 August 2022. The FCA has indicated that it is aiming to consult on the duty of care in May 2021;
• An extension to the maximum sentence for criminal market abuse offences from seven to 10 years’ imprisonment;
• The introduction of an additional power for HM Treasury to bring interest-free, buy-now pay-later products within the scope of FCA regulation;
• The amendment of the Payment Services Regulations (the “PSRs”) to provide that, in certain circumstances, the provision of cash, where there is no corresponding purchase of goods and services, would not amount to “payment services” as defined in the PSRs; and
• The establishment of a simplified process for the FCA to formally cancel the authorisation of an inactive firm for not using its authorisation to perform regulated activities.

The commencement dates for many of these provisions are still to be announced.

Although this is key milestone for the UK in its exit from the EU and although a Memorandum of Understanding has now been agreed in principle with the EU in relation to financial services, the possibility of any equivalence decisions remains uncertain. Accordingly, whilst the relationship between the UK and EU in the context of financial services continues to settle, it is likely that the UK will remain cautious in the approach to its departure from the EU regime.

Benjamin Mark-Alexander Beswick, London Associate, and Tom Macintosh Zheng, London Trainee Solicitor, contributed to the drafting of this alert.