The Bank of England has published a discussion paper on its proposed approach to innovation in money and payments. It explains that innovations in money and payments present risks and opportunities for central banks' monetary and financial stability objective and that central banks must be quick to engage with them and prepare for their implications. The BoE's proposed approach includes developing additional functionalities for the Real-Time Gross Settlement service such as extending settlement hours and a synchronization interface that would allow RTGS to connect to external ledgers, including those based on programmable platforms, and settle assets in central bank money.

Central bank money could interact with programmable platforms through the use of so-called "wholesale central bank digital currency" (wCBDC) technologies. To inform this work, the BoE proposes a program of experiments to test the use cases, functionalities and prospective designs of both wCBDC and synchronization, and their relative merits. The BoE seeks views on its overall approach and on specific topics including, the benefits and risks of programmable platforms and the likelihood of them being taken up at scale by wholesale markets; the pace of innovation in private money, particularly commercial bank money; and the use of tokenized deposits and stablecoins for wholesale transactions.

Responses to the BoE's proposed approach may be submitted until October 31, 2024.

The Payment Systems Regulator has opened a consultation on draft guidance to support payment service providers in their assessment of whether an authorized push payment scam claim raised by a consumer is not reimbursable under the reimbursement requirement because it is a private civil dispute. Private civil disputes are not reimbursable under the mandatory reimbursement requirement. They most often involve situations where the consumer has not received good or services, or they are defective in some way, and there is no indication of an intent to defraud on the part of the alleged scammer. The APP reimbursement requirement, which applies from October 7, 2024, obliges PSPs to reimburse consumers when a payment is executed over the Faster Payments Scheme and the payment was executed following fraud or dishonesty.

The PSR's draft guidance sets out a proposed non-exhaustive set of factors a PSP should consider in its assessment, including: (i) the communication and relationship between the consumer and the alleged scammer; (ii) the trading status of the alleged scammer; (iii) the alleged scammer's capability to deliver the goods or services; and (iv) the extent to which the alleged scammer deceived the consumer as to the intended purpose of the payment. The guidance will apply to claims for payments made via Faster Payments and CHAPS.

The PSR expects sending PSPs to take a proportionate approach to validating claims based on the relative complexity and value of the fraud. PSPs are not expected to undertake complex or resource intensive investigations for simple APP fraud claims. Responses to the consultation may be submitted until August 8, 2024.

The King's speech to Parliament sets out the new government's legislative program. The government has published background briefing notes relating to the King's Speech, providing a summary of the legislation to be brought forward. The Bills announced, in relation to financial services, include:

• A Bank Resolution (Recapitalisation) Bill, which would aim to enhance the U.K.'s resolution regime, providing the Bank of England with a more flexible toolkit to respond to the failure of small banks. The Bill would expand the statutory function of the Financial Services Compensation Scheme to provide funds to the BoE upon request, to be used where necessary to support the resolution of a failing bank. The FSCS would then recover the funds provided by charging levies on the banking sector, similar to the current arrangements for funding depositor pay-outs in insolvency. Credit unions will not be in scope of this levy. The BoE will also be provided with the power to require a bank in resolution to issue new shares, facilitating the use of FSCS funds to meet a failing bank's recapitalization costs.

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The Financial Stability Board has launched two consultations: the first on proposed recommendations to promote greater alignment in data frameworks related to cross-border payments, and the second on consistency in the regulation and supervision of bank and non-bank payment service providers. First, in relation to data frameworks, the FSB's recommendations aim to address identified frictions that pose significant challenges to improving the cost, speed, transparency, and accessibility of cross-border payments, while maintaining their safety and security and upholding the objective of protecting the privacy of individuals. These frictions include the misalignment of data in payments that interferes with the smooth processing of cross-border payments, restrictions on data sharing that impede the ability to safely process cross-border payments, and increased costs due to data storage and handling requirements. To take forward these recommendations in a coordinated manner and to identify emerging issues that should be addressed, the FSB proposes the establishment of a forum comprised of public-sector stakeholders covering payments, AML/CFT, sanctions, and data privacy and protection.

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The Payment Systems Regulator and the Financial Conduct Authority have launched a joint call for information on "big tech" and digital wallets. With the increasing use by consumers of digital wallets provided by big tech firms, the regulators are concerned about the potential risks arising from big tech business models, but are aware also of the opportunities for enhanced payment experiences through the use of digital wallets. The regulators are looking to gather focused information and evidence on issues including:

• the range of benefits that digital wallets bring for service users;
• whether there are any features in the supply of digital wallets that mean payments don't work as well as they could for consumers and/or businesses;

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The Payment Systems Regulator has published its policy statement on compliance and monitoring of the authorized push payment scam reimbursement requirement. As the operator of Faster Payments, Pay.UK is responsible for monitoring all directed payment service providers' compliance with the APP reimbursement rules. Where necessary, and where it has the powers to do so, it will take action to manage compliance.

The PSR's policy statement confirms the requirement for directed PSPs to register with Pay.UK by August 20, 2024. This is one way that PSPs will identify themselves as in-scope of the policy to Pay.UK and will help facilitate a shared FPS Reimbursement Directory. This directory will enable PSPs to find one another's contact details so that they can meet the requirements in the FPS reimbursement rules and related policy, and communicate in respect of FPS APP scam claims received. The PSR sets out the data under reporting standard A that sending PSPs in-scope of the policy are required to retain and report to Pay.UK monthly in respect of transactions they have sent, to enable it to effectively monitor compliance with the FPS reimbursement rules. In addition, the PSR states the reasonable limits it is placing on Pay.UK in respect of the use and disclosure of the compliance data it receives. Finally, the PSR set out its approach to requiring PSPs to inform consumers of their rights under the policy.

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The UK Payment Systems Regulator has updated its list of payment service providers that participate in the Faster Payments Scheme, and therefore may fall in scope of Specific Direction 20 and the mandatory authorised push payment fraud reimbursement requirement. The PSR does not guarantee that this is a complete list. Indirect access providers are required to provide monthly updates to the PSR on any changes to the PSPs to which they provide access to FPS.

The Payment Systems Regulator has published a policy statement on card-acquiring market remedies. The statement confirms the PSR's decision to update the list of directed firms and to introduce a new streamlined method for the transfer of legal entities. The PSR consulted on these changes in January, when it proposed a mechanism to automatically move the obligations of Specific Directions 14, 15 and 16 where the relevant business (i.e. the business of a PSP that caused it to be a directed party) moved to another PSP (whether as part of a reorganization of legal entities within the same group or a transfer to a third-party PSP). The PSR's rationale behind this decision was to provide a mechanism for capturing new entities without having to vary the existing directions. Overall, the PSR received broadly supportive responses to the proposal and is amending the Specific Directions accordingly.

The Payment Systems Regulator has published a letter it sent to payment service providers on the new authorized push payment scams reimbursement requirement. The letter highlights three key areas where the PSR would like firms to focus their implementation activities over the coming months to ensure effective and timely implementation by October 7, 2024, when the new requirement comes into effect. The three areas of focus are:

• Understanding the new reimbursement requirements—all PSPs participating in the FPS will need to consider whether the requirements apply to them either as a sending PSP or as a receiving PSP providing a relevant account to a service user. The requirements apply to both direct and indirect participants of the system.
• Claim management and data reporting through Pay.UK—Pay.UK has procured a reimbursement claim management system which firms will use to communicate with each other and to manage APP scam claims, as well as to report data to Pay.UK so it can monitor and manage firms' compliance with FPS reimbursement rules. Firms have until August 20, 2024 to register with Pay.UK.
• Consumer awareness—the PSR wants firms to be transparent in communicating the reimbursement requirements to consumers and take proactive steps to notify them of the protections available under the new reimbursement requirement.

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The European Banking Authority has published a report on the issuance of virtual IBANs (vIBANs). The report summarizes the EBA's observations from its fact-finding exercise on the issuance and use by payment service providers of vIBANs. It highlights risks and challenges that vIBANs may present to consumers, financial institutions, national competent authorities and to the integrity of the overall EU financial system, based on the six most common vIBAN use cases in the EU. Uses of vIBANs include the automation of payment reconciliation and overcoming IBAN discrimination by associating the vIBAN with a particular Member State's IBAN country code.

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HM Treasury has designated a number of firms for the provision of cash access services, including setting the geographic baselines. The Financial Services and Markets Act 2023 introduced various measures to protect access to cash (e.g., via ATMs) for those reliant on it, in particular the elderly and vulnerable. In addition, HMT published the decision notices for those designated as operators of cash access coordination arrangements (i.e., firms which coordinate the provision of cash access services by multiple providers). Designated firms must ensure reasonable access to withdrawal and deposit facilities for individuals and reasonable access to deposit facilities for SMEs. The FCA is responsible for supervising the designated firms and can impose requirements to ensure that designated firms preserve reasonable cash access services. All the designations came into force on May 24, 2024.

The Bank of England oversees the wholesale cash industry to ensure it continues to operate effectively and remains sustainable and resilient. The wholesale cash system consists of a select group of key market participants which facilitate the production and distribution of banknotes and coins.

On April 19, 2024, the U.K.'s Joint Regulatory Oversight Committee published proposals on the design of the future entity for UK Open Banking. The JROC is composed of the Financial Conduct Authority, the Payment Systems Regulator, HM Treasury and the Competition and Markets Authority. Responses to the proposals may be submitted until May 20, 2024.

The U.K. is seeking to enhance its open banking framework so as to promote competition and innovation for the benefit of consumers and businesses. The JROC is seeking feedback on the structure, governance and funding for both its interim and longer-term model, which involves establishing an interim entity (in H2 2024) and then a "Future Entity" (in 2026). The long-term regulatory framework for open banking will be backed by legislation, including the Data Protection and Digital Information Bill. The Bill features the introduction of Smart Data schemes that would enable, at the customer's request, the secure sharing of data with authorized third parties. The "Future Entity" would replace Open Banking Limited, which was established pursuant to the Retail Banking Market Investigation Order 2017.

HM Treasury has published a policy note and a draft statutory instrument—The Payment Services and Payment Accounts (Contract Terminations) (Amendment) Regulations 2024—on strengthening requirements in the Payment Services Regulations 2017 on contract terminations. These policy changes follow the furore over the de-banking by NatWest Bank of the prominent U.K. politician Nigel Farage, which led to the resignation of its CEO.

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HM Treasury has published a policy note and a draft statutory instrument—The Payment Services (Amendment) Regulations 2024—on a risk-based approach to payments to mitigate against authorized push payment fraud. HM Treasury confirms its policy for allowing payment service providers to delay payments processing when there are reasonable grounds to suspect fraud or dishonesty. The draft statutory instrument amends the Payment Services Regulations 2017 to allow PSPs to delay executing an outbound payment transaction by up to four business days from receipt of the order where there are reasonable grounds to suspect fraud or dishonesty by someone other than the payer and the payer's PSP requires the time to contact the payer (its customer) or a third party (e.g., law enforcement) to determine whether to execute the payment.

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The Fifth Commencement Regulations - the Financial Services and Markets Act 2023 (Commencement No. 5) Regulations 2024 (SI 2024/250)- under the Financial Services and Markets Act 2023 were made on February 29, 2024. One of the major reforms in the Financial Services and Markets Act 2023 related to regulatory accountability, especially of the Financial Conduct Authority and Prudential Regulation Authority. The Fifth Commencement Regulations now provide, among other things, for the coming into effect of certain provisions relating to the accountability of the Payment Systems Regulator, including:

• Starting March 1, 2024, a requirement on the PSR to take certain steps in advance of taking an action where there is a material risk such action would be incompatible with the U.K.'s international trade obligations.
• Starting August 1, 2024, requirements for the PSR's consultations, requiring the PSR to keep general requirements under review, HM Treasury's powers to require the PSR to impose a requirement for a specified activity or for specific firms, detailing the cost-benefit analysis obligations and panel appointment statements of policy.
• Starting January 1, 2025, the remaining provisions on the PSR's accountability that are not already in force.

The Fourth Commencement Regulations - the Financial Services and Markets Act 2023 (Commencement No. 4 and Transitional and Saving Provisions) (Amendment) Regulations 2023 - under the Financial Services and Markets Act 2023 were made on December 14, 2023. 

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The Payment Systems Regulator has published its Final Policy Statement on its new regime for fighting authorized push payment scams. The Financial Services and Markets Act 2023 (discussed in our client note, “A Boost for UK Financial Services”) imposed a new obligation on the PSR to require payment service providers to reimburse consumers when a payment is executed over the Faster Payments Scheme and the payment was executed following fraud or dishonesty.

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The Financial Services and Markets Act 2023 (Consequential Amendments) Regulations 2023 make consequential amendments to various pieces of legislation arising from the repeal by the Financial Services and Markets Act 2023 of certain retained EU financial services laws. The Regulations took effect on January 1, 2024. The Financial Services and Markets Act 2023 (Commencement No. 1) Regulations 2023 provided for the repeal of 98 statutory instruments on August 29, 2023, and further revocations from January 1, 2024, including the European Long-Term Investment Funds Regulation (and related SI and tertiary legislation) and a provision from the Capital Requirements Regulation so as to allow the Bank of England more flexibility to set internal Minimum Requirements for Own Funds and Eligible Liabilities for U.K. subsidiaries of non-U.K. global systemically important banks. These latest Regulations make consequential amendments to ensure that legislation remains consistent with the January 2024 repeals.

Consequential amendments are also made to account for the removal of the double volume cap from the U.K.'s Markets in Financial Instruments regime. The DVC limited the level of dark trading to a certain proportion of total trading in an equity. Instead, the Financial Conduct Authority must monitor trading and has new powers to direct that transparency waivers should be suspended if the ongoing use of the waiver would impact market integrity. In addition, consequential amendments are made following the Electronic Money, Payment Card Interchange Fee and Payment Services (Amendment) Regulations 2023 which amended payments-related REUL.

HM Treasury has published the Future of Payments Review report, setting out the Review's recommendations for HM Treasury, the regulators and industry that aim to improve the U.K.'s existing payments landscape for consumers. The report follows the July 2023 call for evidence. The main recommendation is for the government to develop a National Payments Vision and Strategy, which will provide high-level guidance on priorities and define guiding principles on safety, simplification, coordination, responsiveness, inclusivity and accountability.

The Review makes several other recommendations.

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The Bank of England has published a discussion paper on its proposed approach to developing a regulatory regime for systemic payment systems using stablecoins and related service providers. The BoE’s paper follows the government’s recent Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins which confirmed that these types of stablecoins will be brought into the U.K. regulatory perimeter.

This is part of HM Treasury’s plan to regulate cryptoassets, focusing first on fiat-backed stablecoins. The BoE will be responsible for the financial stability of systemic payment systems using stablecoins. The Financial Conduct Authority will supervise non-systemic fiat backed stablecoins for prudential and conduct of business purposes, and systemic fiat-backed stablecoins for conduct purposes only, and has published a discussion paper alongside the BoE's discussion paper. Responses to both discussion papers may be submitted until February 6, 2024. The Prudential Regulation Authority will supervise banks' activities in tokenized deposits. The PRA has written to banks stating that any business in fiat-backed stablecoins will, among other things, need to be conducted from a separate legal entity under branding that is different to the bank' branding. The Payment Systems Regulator will supervise the competition aspects relating to systemic payment systems using fiat backed stablecoins.

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The U.K. Prudential Regulation Authority has published a Dear CEO letter, addressed to CEOs of banks, setting out its expectations of banks (deposit-takers) regarding the risks that arise from innovations in digital money and money-like instruments available to retail customers. The letter focuses on innovations in the use of deposits (and tokenized deposits), e-money and regulated stablecoins used for payment (which are being brought into the regulatory perimeter).

The PRA sets out how banks are expected to limit contagion arising from confusion regarding the different protections available to retail holders of bank deposits, e-money and regulated stablecoins. Where a bank or its group want to issue e-money or regulated stablecoins, that activity should be carried out from an insolvency-remote entity that is separate to the bank, with different branding from the bank to ensure that any failure of the e-money or stablecoin issuer would not impact the bank and the continuity of its deposit-taking services. The PRA also expects any tokenized deposit-taking to be undertaken in a way that ensures protection under the Financial Services Compensation Scheme. An e-money or stablecoin issuer that decides to accept traditional deposits would first need to establish a separate entity to obtain permission to operate as a bank.

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The U.K. Financial Conduct Authority has published a discussion paper regarding potential future proposals for regulating fiat-backed stablecoins, including when used as a means of payment. The FCA's paper follows the government's recent Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins, which confirmed that changes to legislation would bring these types of stablecoins into the U.K. regulatory perimeter. This is part of HM Treasury's plan to regulate cryptoassets, focusing first on fiat-backed stablecoins.

The FCA will supervise non-systemic fiat-backed stablecoins for prudential and conduct of business purposes, and systemic fiat-backed stablecoins for conduct purposes only. The Bank of England is responsible for the financial stability of systemic payment systems using fiat-backed stablecoins and has published a discussion paper alongside the FCA's discussion paper. Responses to both discussion papers may be submitted until February 6, 2024. The Prudential Regulation Authority will supervise banks' activities in tokenized deposits. The PRA has written to banks stating that any business in fiat-backed stablecoins will, among other things, need to be conducted from a separate legal entity under branding that is different to the banks' branding. The Payment Systems Regulator will supervise the competition aspects relating to systemic payment systems that use fiat-backed stablecoins.

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HM Treasury has published a response to its consultation on cryptoasset regulation, setting out its final proposals for the U.K.'s cryptoasset regulatory regime. The U.K. plans to make cryptoassets a new category of "specified investment" under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and regulate certain activities conducted in relation to them. Under the new regime:

• Firms conducting relevant activities and offering their services in or to the U.K. by way of business would need to apply for authorization by the U.K. Financial Conduct Authority. The relevant activities are: issuing or admitting cryptoassets to trading; operating cryptoasset trading venues; dealing as principal or arranging deals in cryptoassets; operating a cryptoasset lending platform; and safeguarding or safeguarding and administering cryptoassets (or arranging the same). Overseas firms offering their services into the U.K. may need to obtain FCA permission (although HM Treasury envisages equivalence/deference-type arrangements in the future and is considering alternative approaches to full authorization in the interim).
• Firms that are already authorized to conduct other activities will need to apply for a Variation of Permission if they wish to conduct regulated cryptoasset activities.
• Authorization under the new regime will not be automatically granted to cryptoasset firms registered with the U.K. Financial Conduct Authority for money laundering purposes, although the FCA will consider applicants' regulatory history when determining authorization applications.

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HM Treasury has published a Policy Paper on Plans for the Regulation of Fiat-backed Stablecoins, setting out the next steps for the implementation of stablecoin regulation in the U.K. Fiat-backed stablecoins are (under HM Treasury's proposed definition) those which seek or purport to maintain a stable value by reference to a fiat currency, and hold that currency, in whole or in part, as backing.

The Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services) empowers HM Treasury to bring certain activities related to the use of "digital settlement assets" (which may include fiat-backed stablecoins), within the regulatory perimeter and to establish a regime for the supervision of stablecoin issuers. DSAs are defined broadly under the FSM Act as digital assets that can be used for payment, can be transferred, stored or traded electronically and use technology (e.g., distributed ledger technology) to record or store data. HM Treasury plans to bring certain activities related to fiat-backed stablecoins within the scope of regulation ahead of other types of cryptoasset, due to their potential to become a widespread means of retail payment.

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The Basel Committee on Banking Supervision published a press release in early October in which it announced:

• That it would consult on disclosure frameworks for climate-related financial risks (in November 2023) and banks' cryptoasset exposures (soon).
• The publication of its report on the banking turmoil of 2023, which assesses the causes of the turmoil, the regulatory and supervisory responses, and the initial lessons learnt. The Basel Committee states that it will be undertaking some follow-up work, including prioritizing work to bolster supervisory effectiveness globally and assessing whether any aspects of the Basel Framework did not function as intended during the turmoil.
• That by mid-2024 it would publish a report on developments in the digitalisation of finance and their implications for banks and supervisors.

HM Treasury has published a further policy statement on payment service contract termination rule changes, setting out its approach to implementation, timing and next steps. This latest policy statement follows the government's July policy statement in which it confirmed that it would bring forward legislation to enhance the requirements governing payment account terminations. This issue has become topical in light of the "de-banking" of higher risk or less profitable clients by several institutions and recent scandals in the U.K. involving account terminations of some politicians. The main changes being brought forward are:

• A requirement for payment account providers to provide clear and tailored explanatory reasons to an account user for the termination. The requirement would not apply where it would be unlawful to provide such information, for example, under U.K. financial crime and anti-money laundering legislation.
• A 90-day notice period before a payment account is terminated by a provider, subject to situations where there is a serious and uncorrected breach by the payment user of the terms applying to the account. It would also be clarified that reasons such as brand protection would not be sufficient justification for a shorter notice period.

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The U.K. Joint Money Laundering Steering Group opened a consultation on July 28, 2023 on guidance on the U.K. travel rule for cryptoasset transfers. The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 introduced the cryptoasset travel rule by amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, and firms will need to comply with the requirements from September 1, 2023. The travel rule requires certain identification information on the sender (originator) and recipient (beneficiary) to accompany a transfer of a cryptoasset. The JMLSG is proposing to add a new annex setting out guidance on the U.K. travel rule for cryptoassets, covering scope, information requirements, batch transfers, returns, unhosted wallet transfers, wallet attribution, linked transactions and use of a layer-2 solution such as the Lightning Network. The guidance also states that firms should consider communications from the Financial Conduct Authority on the sunrise issue, which refers to the impact of jurisdictions implementing the travel rule at different times. Firms may encounter issues when dealing with counterparties in jurisdictions that have not implemented the travel rule for cryptoassets, for example, when dealing with EU counterparties for which the EU travel rules for cryptoasset transfers will only apply from December 30, 2024. Responses to the JMLSG consultation may be submitted until August 25, 2023.

The Financial Stability Board has finalized its global regulatory framework for cryptoasset activities and markets and revised the framework for global stablecoin arrangements. Both frameworks, based on the principle of "same activity, same risk, same regulation" aim to provide a basis for consistent regulation across the globe that is proportionate to the risks.

Comprising nine high-level recommendations for the regulation, supervision and oversight of cryptoasset activities and markets, the cryptoasset framework sets out the key objectives for implementation of an effective regulatory and supervisory regime for mitigating the risks posed by cryptoassets. The recommendations are:

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HM Treasury has published a response to its consultation on payments regulation and the systemic perimeter. The consultation was prompted by the U.K. government's Payments Landscape Review and HM Treasury's concern that some payments services operators were not subject to systemic supervision but may pose systemic risks to the U.K. financial system.

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HM Treasury has published a Call for Input on the U.K. Future of Payments Review, an investigation into how future payments are likely to be made and how the U.K. can offer world-leading retail payments. The review is focused on consumer needs — specifically, those of individuals and businesses processing retail payments. Input is sought on the following issues:

1. What are the most important consumer retail payment journeys, both today and in the next five years?
2. How does the experience of these journeys by U.K. consumers (individuals and businesses) compare with those of other leading countries?
3. How likely are the existing plans and initiatives across the payments landscape to deliver world-leading payment journeys for U.K. consumers?

The Call for Input is open until September 1, 2023.

Following rigorous debate in Parliament, the U.K.'s latest Financial Services and Markets Act (FSM Act) received royal assent on June 29, 2023. The FSM Act significantly changes the U.K.'s regulatory framework for financial services, implementing the government's post-Brexit Future Regulatory Framework Review and the Edinburgh Reforms. The existing regulatory model under the Financial Services and Markets Act 2000 has been enhanced with the introduction of a new "Designated Activities Regime" for the regulation of activities related to the financial markets, transfer to the U.K. regulators of responsibility for making and reviewing detailed firm rules, subject to enhanced oversight by Parliament and HM Treasury, and the establishment of a regulatory framework for oversight of third parties that provide critical services to financial institutions.

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On April 20, 2023, the European Parliament announced that it had formally endorsed the draft Regulation on information accompanying transfers of funds and crypto assets (referred to here as the EU Travel Rule Regulation). The draft Markets in Crypto-Assets (MiCA) Regulation has also been adopted.

The existing EU Wire Transfer Regulation (EU WTR) requires EU Payment Service Provider to ensure that information on the payer and the payee accompanies a transfer of funds. The funds can be in any currency, and comprise banknotes and coins, scriptural money and electronic money.

The EU Travel Rule Regulation will extend the requirements to crypto assets and crypto-asset services providers (CASPs), (both as defined under the draft MiCA Regulation) with information on the originator and the beneficiary being required to accompany any transfers in crypto assets, regardless of whether they are domestic or cross-border. The requirements will not apply to person-to-person transfers of crypto assets where a CASP is not involved, or when both the originator and the beneficiary are providers of crypto-asset transfers acting on their own behalf.

The EU Travel Rule Regulation must still be published in the Official Journal of the European Union before it comes into effect. This is likely to be around July this year. At that time, the EU Travel Rule Regulation will repeal the EU WTR, however, the existing requirements on information accompanying transfers of funds will carry over to the new Regulation. The EU Travel Rule Regulation will apply from the same date that the MiCA Regulation applies, which is expected to be January 2025.

The U.K. government has published its much-anticipated proposals for regulating the cryptoasset industry. These proposals, currently in the form of a consultation, will see many (but not all) cryptoasset-related activities being brought within the regulatory perimeter for financial services in the U.K. The consultation is extensive, covering the main elements of a new regime for cryptoasset issuance and disclosure, trading, custody and lending, as well as a proposed market abuse framework for cryptoassets.

The consultation closes on 30 April 2023. The government will publish its response once it has analysed the feedback, which will be followed by legislation being put before Parliament. The Financial Conduct Authority will consult on its proposed detailed rules once the legislation has been published.

The government has also announced a significant change to its earlier communicated approach to the regulation of cryptoasset financial promotions. Previously, such promotions could be issued only by regulated financial institutions. The changes will mean that those cryptoasset businesses that are registered with the FCA for the purposes of anti-money laundering compliance will be able to communicate their own financial promotions in relation to qualifying cryptoassets.

We discuss these proposals in detail in our client note, "UK Proposals for Cryptoasset Regulation".

The Basel Committee on Banking Supervision has published its final bank prudential requirements for exposures to crypto-assets. The Basel Committee consulted on these requirements in 2021 and 2022 and has now set the minimum standards based on the principle of "same risk, same activity, same treatment." These standards will be implemented by January 1, 2025. The Basel Committee has maintained the different prudential approaches depending on whether a crypto-asset meets certain conditions. Crypto-assets that meet all of the conditions are referred to as "Group 1 crypto-assets" and are generally tokenized crypto-assets and stablecoins. Group 2 crypto-assets are all other crypto-assets, which are deemed to present additional and higher risks than Group 1 crypto-assets. The capital requirements for Group 1 crypto-assets will be based on the risk weights for exposures under the existing Basel framework. Exposures to Group 2 crypto-assets will attract a higher capital charge.

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Following the Call for Evidence on digital assets in 2021, the U.K. Law Commission has issued a consultation on proposals to reform the law of England and Wales to recognize and protect the rights of users of digital assets. The Law Commission believes that the law of England and Wales is sufficiently resilient, flexible and iterative to adapt to digital assets, including cryptoassets and stablecoins. However, the law Commission considers that law reforms are needed to ensure that digital assets gain from consistent legal recognition and protection. Responses to the consultation may be submitted until November 4, 2022.

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HM Treasury has opened a consultation on payments regulation and the systemic perimeter.  The consultation arose out of the Payments Landscape Review and the government’s commitment to consult on bringing systemically important entities within payment chains under Bank of England regulation.  Market developments and innovation have changed how risks are dispersed across payment networks. It is therefore likely, according to HM Treasury, that some entities operating in the payments space are not subject to systemic supervision by the Bank of England and as a result pose systemic risks to the U.K. financial system or even to those entities that are subject to Bank of England supervision.  This consultation makes various proposals to address such risks or issues. Responses to the consultation may be submitted until October 11, 2022.  The government will respond to that feedback in 2023.

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The U.K. government has published the much anticipated Financial Services and Markets Bill. Following its exit from the EU, the U.K. has undertaken a fundamental review of how financial regulation policy and rules should be made, reviewed and established in law, particularly in light of the return of the U.K.'s sovereignty. Furthermore, there has been a substantial assessment of the U.K.'s financial services rules and regulations, with some areas warranting further consideration. The Bill implements the outcomes of the Future Regulatory Framework Review, which assessed whether the U.K. financial services regulatory framework is fit for purpose and able to support future growth, particularly in light of challenges such as Brexit and climate change. On the same day, HM Treasury published its response to the final consultation in the FRF Review. The FSM Bill establishes a revised blueprint for financial services regulation by revamping the existing model under the Financial Services and Markets Act 2000 and revoking retained EU law in financial services. The regulators will be delegated powers for detailed rulemaking, and as a result, become subject to enhanced Parliamentary oversight.

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The Financial Stability Board has issued a statement on international regulation and supervision of crypto-asset activities. The statement is made in light of the crypto-asset market turmoil. The statement warns crypto-asset service providers to comply with existing legal obligations in the countries in which they operate, which would include anti-money laundering obligations. FSB members are implementing the Financial Action Task Force's recommendations for crypto-asset service providers to be registered for AML purposes and to comply with the so-called travel rule, which requires relevant originator and beneficiary information to accompany crypto-asset transactions.

The FSB reiterates that an effective regulatory framework should adopt the "same risk, same outcome/regulation" approach. The FSB is progressing work with other international standard-setting bodies to tackle potential financial stability risks presented by crypto-assets, including stablecoins. This includes reviewing existing applicable standards, identifying gaps, and adjusting those standards or developing new standards. The FSB's view is that stablecoins that are used as a means of payment potentially present significant risks to financial stability and should be subject to robust regulations and supervision, including transparency obligations and, importantly, holding sufficient reserves to mitigate financial stability risks. The FSB will report to the G20 Finance Ministers and Central Bank Governors in October this year on the adoption of regulatory approaches to stablecoins.

The House of Commons Treasury Committee has published a report on the Future of Financial Services Regulation setting out its view on the priorities for regulatory change in the U.K. now that the U.K. has left the EU. The report considers some of HM Treasury's proposals in the Future Regulatory Framework Review and presents its related recommendations. It also makes specific recommendations for the Financial Conduct Authority and the Prudential Regulation Authority.

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Following its 2021 consultation on targeted amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the MLRs), the U.K. government has published a consultation response which summarises the feedback to the consultation and sets out the government's approach to making changes to the statutory instrument. The amendments will be made in the draft Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, which are intended, for the most part, to take effect from September 1, 2022. A summary of the changes is set out below. The government will also soon publish its response to the call for evidence on the U.K.'s anti-money laundering and counter terrorist financing regulatory and supervisory regime, which covered the overall effectiveness and extent of the regime, whether key elements operate as intended, and the structure of the supervisory regime.

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HM Treasury has opened a consultation on managing the failure of systemic digital settlement asset firms, including stablecoin firms. In April 2022, the U.K. government confirmed that it will bring the issuing of or the facilitating of the use of stablecoins used as a means of payment into the U.K. regulatory perimeter. Issuers of stablecoins for payments as well as other entities providing related services, including wallet providers and firms providing custody services, will be subject to regulation by the Financial Conduct Authority. The government also noted that, to manage the failure of systemic stablecoin firms, it would be considering extending the definition of a payment system to include arrangements that facilitate or control the transfer of "digital settlement assets" (DSAs). Such firms that are deemed systemically important will also be subject to supervision by the Bank of England, meaning that they will be authorized by the FCA and recognized by the Bank of England, and the Bank will be the lead prudential regulator.

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HM Treasury has published a summary of responses it received to its consultation on protecting access to cash across the U.K. In the response, HM Treasury confirms that it will be proceeding with the proposal to designate which firms will have obligations to ensure reasonable access to withdrawal and deposit facilities for individuals and reasonable access to deposit facilities for SMEs. The measures will be provided for in the Financial Services and Markets Bill, which was announced in the Queen's Speech.

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Following the Queen's speech yesterday, the government has published a briefing pack setting out details of the bills that it intends to introduce, including the so-called Brexit Freedoms Bill as well as key legislation relevant to financial services. The government will introduce a Financial Services and Markets Bill, which will, among other things:

• Introduce new statutory objectives for the financial services regulators to support growth and international competitiveness.
• Implement the changes to the wholesale markets arising out of the Wholesale Markets Review. HM Treasury confirmed in March of this year that the changes that will be made by legislation and where powers will be delegated to the financial services regulators for rules to be made. Among the changes are the removal of the share trading obligation and the double volume cap, changes to the derivatives trading obligation, taking OTC derivatives that are economically equivalent to exchange traded commodity derivatives out of the position limits regime, and the establishment of a consolidated tape.

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The U.K. Payment Systems Regulator Panel has published a report on its Digital Payments Initiative, which investigated potential barriers to the take-up of digital payments and possible solutions. The Panel advises the PSR on a continuous basis but undertook the Digital Payments Initiative as a special project to address the issue of consumers failing fully to embrace the benefits of digital payments.

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The European Commission has published three consultations on the revised EU Payment Services Directive and on open finance. The results of the consultations will help inform the Commission's review of PSD2 and proposed legislation on a broader open finance framework, as part of plans developed under the 2020 EU Digital Finance Strategy and EU Retail Payments Strategy. The review of PSD2 will take stock of the impact that the Directive has had on the EU payments market and whether its objectives have been achieved. The open finance review will gather evidence on the current state of open finance, its further development and effective consumer protection. The EU is proposing to develop an open finance framework, as outlined under the EU's 2021 communication on the Capital Markets Union.

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Prince Charles, Prince of Wales, delivered the Queen’s speech in which he announced that the government will be introducing the so-called Brexit Freedoms Bill, which was first announced by Prime Minister Boris Johnson on January 31, 2022, and is intended to make it easier to amend or remove retained EU laws to better suit the U.K.’s circumstances and policies. The Brexit Freedoms Bill will work in tandem with a government drive to reform, repeal and replace EU laws that are seen as outdated, cumbersome or otherwise not in the U.K.’s national interest.

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HM Treasury has published a Policy Statement on its plans for protecting the U.K.'s wholesale cash infrastructure. In recent years, use of cash has diminished in favour of cashless transactions but the U.K. government is aware of the need to continue supporting cash transactions, particularly for elderly and vulnerable groups. The government has been investigating the use and protection of cash payments in the retail sector, including a consultation on protecting access to cash launched in 2021. The results of that consultation are under consideration.

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The European Commission has launched a targeted consultation on a possible digital euro. The EU is considering introducing a digital euro for retail payments, which would be available alongside cash. A decision has not yet been made. The European Central Bank, responsible for the design and implementation of the digital euro, launched a project in July 2021 to get ready for the potential issuance of a digital euro. The introduction of a digital euro would require an EU regulation based on a proposal by the European Commission and agreed through the co-legislative process. Legislative changes would also be needed for existing legislation (e.g., under the revised Payment Services Directive). Central banks from non-euro area Member States also envisage issuing digital currencies.

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Following the call for evidence issued in January 2021, the U.K. government has confirmed that it will bring the issuing or facilitating the use of stablecoins used as a means of payment into the U.K. regulatory perimeter, in an announcement by John Glen, MP, at U.K. Fintech Week. The details were published in a response to the consultation.

Consistent with the proposals under the Future Regulatory Framework Review, the government will set the regulatory perimeter, objectives and principles and the regulators - the Financial Conduct Authority, the Bank of England and the Payment Systems Regulator - will set out the detailed requirements in rulebooks. The government also confirms that it intends to consult later in 2022 on regulating a wider set of crypto activities, including trading of cryptocurrencies such as Bitcoin and Ether.

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The U.K. Payment Systems Regulator has issued a statement on the situation in Ukraine. The PSR encourages firms to reflect on how they are managing their risks related to the situation, in particular:

• the ability of the firm to bear an attack from a sophisticated state actor;
• whether staff are available to handle an elevated cyber risk from state sponsored and other actors; and
• implications of sanctions for third-party suppliers, and the resilience of those suppliers.

The PSR highlights the guidance issued by the National Cyber Security Centre on actions to take in response to the Ukraine situation, and it warns firms to remain vigilant of any cyber security threat.