HM Treasury has published a consultation on the establishment of a financial market infrastructure sandbox, known as the Digital Securities Sandbox. The sandbox will be established using new powers granted by the U.K. Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for UK Financial Services"), empowering HM Treasury to set up individual FMI sandboxes. The sandboxes are designed to enhance understanding of the use cases for emerging digital asset technologies, including distributed ledger technology. HM Treasury can modify or disapply legislation and rules within the sandbox to permit different technologies to be tested that would not be possible under the existing legislative and regulatory framework, with the potential to make permanent changes to legislation based on the findings of the sandbox.

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The Financial Services and Markets Act 2023 (Commencement No. 1) Regulations 2023 were made on July 10, 2023 and will bring into force provisions under the Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services: The U.K. Financial Services and Markets Act 2023") from either July 11, 2023, August 29, 2023 or January 1, 2024.

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The Law Commission, a U.K. body which makes suggestions for legislative reform, has published a final report in response to its July 2022 consultation on potential digital asset law reforms.

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On June 7, 2023, the U.K. government published a statutory instrument (the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FP (Amendment) Order) and related explanatory memorandum) amending the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO). The amendments broadly reflect HM Treasury's final proposals on cryptoasset financial promotions, published in January 2022. The expanded financial promotions regime will apply from October 8, 2023, an implementation period of four months as opposed to the originally proposed six, given recent market volatility. The new regime will capture promotions for "qualifying cryptoassets" with respect to the following (existing) controlled activities:

• dealing in securities and contractually based investments;
• arranging deals in investments;
• managing investments;
• advising on investments; and
• agreeing to carry on any of the above activities.

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On June 8, 2023, the U.K. Financial Conduct Authority published its final Policy Statement setting out detailed rules for the U.K.'s cryptoasset financial promotions regime. The Policy Statement follows the publication on June 7, 2023 of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FP (Amendment) Order), which will bring the promotion of certain cryptoasset activities within the U.K.'s financial promotions regime. The FCA's rules will apply from October 8, 2023 (the same date that cryptoassets are brought within the financial promotions regime under the FP (Amendment) Order).

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On May 23, 2023, the International Organisation of Securities Commissions launched a consultation on proposed policy recommendations for crypto and digital asset markets. IOSCO is proposing that the final recommendations, which it expects to publish in Q4 2023, will help IOSCO members to apply the IOSCO Objectives and Principles for Securities Regulation to crypto asset activities. Responses to the consultation may be submitted until July 31, 2023.

IOSCO is proposing 18 recommendations that cut across the following areas:

• Conflicts of interest arising from vertical integration of activities and functions.
• Market manipulation, insider trading and fraud.
• Cross-border risks and regulatory cooperation.
• Custody and client asset protection.
• Operational and technological risk.
• Retail access, suitability and distribution.

The proposed recommendations do not cover decentralized finance activities, products or services. IOSCO will consult on recommendations for DeFi activities later this year.

On May 18, 2023, the International Institute for the Unification of Private Law (UNIDROIT), the intergovernmental organization for modernizing and coordinating private law, published a set of draft Principles on Digital Assets and Private Law. The 19 Principles provide high-level guidelines with which States (including UNIDROIT Member States) would be encouraged to align their own legislation on digital assets. The U.K., U.S. and EU Member States are among the members of UNIDROIT. The Principles have been designed to be neutral as to jurisdiction, technology and their manner of implementation, making them flexible and easy to incorporate into national legal systems. If the draft Principles are accepted by UNIDROIT's Governing Council, they are expected to be finalized and published in 2023.

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On April 20, 2023, the agreed text of the proposed European Markets in Crypto-Assets Regulation was given final approval by the European Parliament. The Regulation is intended to improve legal certainty in the regulatory treatment of crypto-assets, to preserve consumer protection and market integrity in crypto-asset markets and to ensure financial stability. The text must now be formally endorsed by the Council of the European Union and will then be published in the Official Journal of the European Union. It will enter into force 20 days after publication. The majority of the Regulation is expected to apply from around January 2025, with the exception of the provisions regarding asset-referenced token issuers and e-money token issuers, which should apply from around July 2024.

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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.

Following its consultation in 2022, on February 9, 2023 the U.K. Jurisdiction Taskforce published a Legal Statement on the issuance and transfer of digital securities under English private law.

Digital securities are shares, bonds and other debt securities which are constituted by reference to a blockchain or distributed ledger. English law is commonly used as the governing law of choice for conventional debt securities in international markets. Seeking to provide legal certainty on the use of digital securities, the Legal Statement concludes that English law can support the issuance and transfer of digital bonds on a public blockchain without custodians, and the on-chain transfer of digital equity securities.

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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 Bank of England has published a joint consultation paper with HM Treasury on the possibility of a digital pound in the U.K. It is envisaged that the digital pound would be a retail central bank digital currency, to be used in day-to-day payments by individuals and businesses. It would operate alongside, instead of replacing, cash. The BoE has also published a Technology Working Paper that explores the technological requirements of a U.K. CBDC. At this stage, the BoE is seeking input on the need for the digital pound and its early-stage proposals for the currency's form and function. As in previous communications on the subject, the BoE and HM Treasury emphasize that no decision has been made on whether to introduce a U.K. CBDC. The introduction of a CBDC would take years to implement, with the design phase expected to last until 2026. Responses to the consultation and Technology Working Paper should be submitted by June 7, 2023.

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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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The U.K. Government has announced on a series of initiatives, billed as the Edinburgh Reforms, to reform the laws for the U.K. financial services sector. The proposals cover:

• Reforms to Ring-Fencing Regime;
• Implementation of Post-Brexit Financial Regulatory Framework;
• Growth and Competitiveness Remit for U.K. Regulators;
• Reforms to Wholesale Markets;
• Faster Settlement;
• Senior Manager's and Certification Regime;
• Changes to Promote Investment and Growth in Financial Services;
• Sustainable Finance;
• FinTech and Digital Assets; and
• Consumer Credit.

We discuss these reforms in detail and what they might mean for the direction of travel for financial services regulation in the U.K. in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services".

The U.K. Financial Conduct Authority has published a consultation paper on proposed guidance on the regulatory perimeter for multilateral trading facilities and on possible future changes to smaller trading venues' regulatory obligations. The FCA's consultation follows proposals made in HM Treasury's July 2021 U.K. Wholesale Markets Review, the response to which was published in March 2022. Responses to the FCA's consultation should be submitted by November 11, 2022. The FCA plans to finalize the draft guidance and publish a policy statement in Q2 2023.

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The U.K. Financial Conduct Authority has published a Policy Statement and final rules on improvements to the Appointed Representatives regime. The AR regime allows authorized firms to appoint representatives to conduct certain regulated activities on their behalf. The FCA consulted on proposed changes to the regime in December 2021. The changes will take effect from December 8, 2022, although there is a transitional period for some of the rules (e.g., those relating to on-going submission of information and annual self-assessments), giving firms longer to comply. Principal firms will be required to provide data on their existing ARs within 60 days of the rules coming into force – the FCA will be sending out section 165 requests for information towards the end of 2022.

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The U.K. Jurisdiction Taskforce has published a consultation on the issuance and transfer of "digital securities" under English law. Digital securities are shares, bonds and other debt securities which are constituted by reference to a blockchain or distributed ledger. English law is commonly used as the governing law of choice for conventional debt securities in international markets, but a question arises as to whether English law can support the issuance and transfer of digital securities. The UKJT intends to publish a legal statement on the subject in December 2022.

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The U.K. Financial Conduct Authority has published its final Policy Statement and Rules on financial promotions of high-risk investments and firms approving financial promotions. Many of these changes address or build upon recommendations of the Gloster Report or are otherwise related to the fallout from the London Capital & Finance plc scandal. The rules on risk warnings for financial promotions of high-risk investments will apply from December 1, 2022, and all other rules will apply from February 1, 2023. The FCA's related guidance (which is included in Annex 2 of the Policy Statement) will also apply from February 2023.

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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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The U.K. Financial Conduct Authority has published its final rules and guidance for the new Consumer Duty, which is intended to establish clearer standards for consumer protection across the financial services industry. The FCA conducted two consultations, one in May 2021 and another in December 2021 (following its earlier Discussion paper and Feedback Statement in 2018/2019). The final rules and guidance take account of the feedback received to those consultations.

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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 International Organization of Securities Commissions and the Committee on Payments and Market Infrastructures have published guidance on the application of the Principles for Financial Market Infrastructures to systemically important "stablecoin arrangements" that are considered to be systemically important FMI and that have a transfer function. "Stablecoin arrangements" combine a range of functions e.g., issuance, transfer, storage and exchange of coins that purport to be used as a means of payment and/or a store of value. The various functions may be performed by a single entity or may be unbundled and offered by a range of entities. According to the guidance, systemically important stablecoin arrangements that have a transfer function (i.e., facilitate the transfer of crypto tokens between users) should be considered to be systemically important FMIs and therefore subject to the PFMIs. Other types of stablecoin arrangement may be captured by CPMI/IOSCO principles, for example, stablecoin arrangements that are primarily used for making payments should adhere to the principles for payment systems. However, the current guidance only relates to stablecoin arrangements which perform transfer functions.

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The UK Treasury Commitee has launched an inquiry into the role of crypto-assets in the U.K. and their regulatory framework. The inquiry poses questions on a range of subjects, including the likelihood of digital currencies (e.g., stablecoins) replacing traditional fiat currencies, the risks and opportunities posed by crypto-assets and the environmental implications of crypto-asset technology, as well as a range of questions on the optimal approach to regulation for the industry. Responses should be submitted by September 12, 2022. The inquiry comes in the wake of another period of volatility in the crypto markets, which has drawn attention to some of the risks of investing in these products.

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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 European Securities and Markets Authority has launched a consultation on proposed guidelines on standard forms, formats and templates to apply for permission to operate distributed ledger technology for market infrastructure. The EU Regulation on a pilot regime for DLT market infrastructures will permit certain DLT market infrastructures to operate with exemptions from some elements of otherwise applicable EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The DLT Regulation sets the conditions for operating a DLT multilateral trading facility (DLT MTF), DLT settlement system (DLT SS) and DLT trading and settlement system (DLT TSS), and will, for the most part, apply from March 23, 2023. ESMA is consulting on proposed guidelines on:

• the minimum instructions that national competent authorities should provide to market participants for submitting their applications; and
• the method that applicants should use to provide the requested information and documents to their competent authorities.

Responses to the consultation may be submitted until September 9, 2022. ESMA will consider the feedback and intends to publish the final guidelines before the DLT Regulation applies.

Following its consultation last year, the Basel Committee on Banking Supervision has launched a second consultation on bank prudential requirements for exposures to crypto-assets. The first consultation set out a preliminary proposal for the prudential treatment of crypto-assets, based on feedback to the 2019 discussion paper and other input from stakeholders. This second consultation proposes revisions to the initial proposals based on the feedback received and sets out proposed minimum standards based on the principle of "same risk, same activity, same treatment". Responses to the consultation may be submitted until September 30, 2022. The Basel Committee intends to publish final standards before the year-end; standards may be stricter than those presented in this consultation if feedback indicates any deficiencies.

The Basel Committee is maintaining its approach of adopting different prudential treatments 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 will be subject to the existing Basel framework. Group 2 crypto-assets are those that do not meet the conditions and are therefore deemed to present additional and higher risks than Group 1 crypto-assets. Group 2 crypto-assets will be subject to an adapted prudential regime, with netting and a 100% capital charge. Group 1 and Group 2 crypto-assets could be tokenized crypto-assets and stablecoins; Group 2 could also include unbacked crypto-assets.

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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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The EU has published in the Official Journal of the European Union its Regulation on a pilot regime for market infrastructures based on distributed ledger technology. The pilot regime will permit certain DLT market infrastructures to operate with exemptions from some EU financial services legislation, which may otherwise inhibit the trading and settlement of crypto-assets. The regime is intended to promote legal certainty, support innovation, preserve market integrity and ensure financial stability for the use of DLT in crypto-asset and e-money token markets.

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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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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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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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The European Banking Authority has published a report on the EU non-bank lending sector i.e., the growing number of financial intermediaries operating outside the EU financial services regulatory perimeter, including BigTech firms (e..g, Meta, Amazon and Google) and FinTech firms, which develop innovative technology for financial services.

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The U.K. Financial Conduct Authority has published the findings of its multi-firm review into financial crime controls at challenger banks. The FCA undertook the review in 2021 in response to the 2020 National Risk Assessment of money laundering and terrorist financing, which highlighted the risk that quick onboarding processes advertised by challenger banks could appeal to criminals. The FCA's review revealed that technology is being used well to identify and verify customers quickly and that there are not many differences between the financial crime risks facing challenger banks and those posed to traditional retail banks. However, there are several areas where improvements can be made, at the onboarding stage and beyond.  The FCA has requested all challenger banks to review its findings and implement the changes necessary to mitigate the risk of financial crime. As firms grow, their financial crime control resources, processes and technology should be appropriately adapted.

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report on the Future of Post-Trade. The Taskforce is made up of financial market industry individuals involved in post-trade processing activities and was set up as part of the Bank of England's response to the "Future of Finance" report, which set out a vision for the medium-term future of the U.K. financial system and the BoE's role in supporting that.

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The U.K. Financial Conduct Authority has published a three-year Strategy on improving outcomes of regulation and its 2022/23 Business Plan. In the 2022-2025 Strategy, the FCA outlines its expectations of financial services across all sectors, with a view to the overall outcomes that firms should achieve. There are three outcomes for both the wholesale and retail markets, which are fair value, access and confidence. An additional outcome of suitability and treatment applies for the retail markets, to ensure that consumers are treated well and are sold products and services that are suitable for them. The 2022/23 Business Plan sets out the detailed work that the FCA will undertake over the next year to meet the commitments made in its Strategy.

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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 Financial Stability Board has published a letter to G20 Finance Ministers and Central Bank Governors outlining its work priorities for 2022, which are:
 

• Supporting financial market adjustment to a post-COVID-19 world: the FSB observes vulnerabilities in the financial system, such as embedded leverage in some parts of the system and rising real estate and other asset valuations, which could pose risks to stability in the event of tightening financial conditions. Uneven unwinding of pandemic support measures is also a risk and the FSB will prepare an interim report in July and final report in October on policy considerations to support a more even global pandemic recovery.

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The Financial Stability Board has published a report on the risks that crypto-assets pose to global financial stability. The FSB observes that the crypto-assets market is growing rapidly and could reach a point where it poses a threat to global financial stability. The market's rapid evolution also raises the risk of regulatory gaps and the opportunity for arbitrage by market players.

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The European Supervisory Authorities (the European Securities and Markets Authority, the European Insurance and Occupational Pensions Authority and the European Banking Authority) have published a joint report on digital finance and related issues, in response to the European Commission's Call for Advice on digital finance, which was published in February 2021. The Call for Advice sought input to advance the EU Digital Finance Strategy, which was launched in September 2020 and set out the EU's plan to review the EU financial services legislative framework in light of developments in digital finance in order to safeguard financial stability and protect consumers. 

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The U.K. Financial Conduct Authority has launched a consultation on proposed changes to the financial promotion rules. The proposals range from rules relating to the approval by authorized firms of financial promotions of unauthorized firms and the new regime for qualifying crypto-assets and other high-risk investments. Many of this suite of changes address or build upon recommendations of the Gloster Report or are otherwise related to the fall-out from the London Capital & Finance plc scandal. Responses to the consultation may be submitted until March 23, 2022. The FCA intends to publish its final rules in Summer 2022.

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Following its July 2020 consultation, HM Treasury has published a consultation response on its proposals to amend the U.K.'s financial promotion rules. These include changes to subject unregulated crypto-assets to the financial promotions regime. The response summarizes the feedback to the consultation and outlines how relevant crypto-asset promotions will be regulated. The government is proceeding with its proposal to bring qualifying crypto-assets within the scope of the Financial Promotion Order as controlled investments. Qualifying crypto-assets will be fungible (freely replaceable by another of a similar nature or kind) and transferable (which excludes crypto-assets in closed systems). E-money and central bank digital currencies will be excluded from the definition. In a change from the original proposal, the government has decided to remove the reference to distributed ledger technology from the definition of a qualifying crypto-asset. The aim of this change is to future-proof the definition for technological innovation.

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The European Securities and Markets Authority has published a call for evidence on the need to amend existing Regulatory Technical Standards under the EU Markets in Financial Instruments Regulation to accommodate the upcoming distributed ledger technology pilot regime, which is expected to be published in spring 2022 and will begin to apply 9 months after its publication (i.e. the beginning of 2023). Responses to the call for evidence should be submitted by March 4, 2022.

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The U.K. Financial Conduct Authority has published a consultation paper on proposed improvements to the Appointed Representatives regime. The AR regime allows authorized firms to appoint third parties to conduct certain regulated activities on their behalf. The FCA has identified shortcomings in principals' use of the regime, including a lack of proper oversight over ARs and poor controls over the regulated activities for which ARs had accepted responsibility. The collapse of Greensill Capital (UK) Limited in 2021 highlighted some of these issues, as one of Greensill's subsidiaries had acted as an appointed representative for another firm and its business had arguably grown to be far more substantial than was intended under the AR regime.

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The Law Commission has concluded that the existing law of England and Wales can accommodate smart contracts and there is no need for legislative reform. It has published advice to the U.K. Government and a separate summary of its conclusions on the subject. The Law Commission commenced its investigation into the ability of English law to accommodate both smart contracts and digital assets in September 2020. It has published a separate interim update on the digital assets project, which sets out the status and timing of the digital assets project. It anticipates publishing its digital assets consultation paper in mid-2022 as opposed to end-2021, as originally proposed.

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The Bank of England and HM Treasury have announced the next steps in the development of a U.K. Central Bank Digital Currency. 

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HM Treasury has published a response to the Payments Landscape Review call for evidence.  The government sets out the key areas and steps for government, regulators, and industry to achieve a payments sector at the vanguard of technology and innovation.  

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The U.K. Financial Conduct Authority has launched a consultation on changes to the U.K. listing regime. This consultation follows the recommendations made by Lord Hill in the U.K. Listing Review as well as the Kalifa Review of FinTech. Responses to the consultation may be submitted until September 14, 2021.

The U.K. government is currently consulting on changes to the U.K. prospectus regime, having launched the U.K. Prospectus Review last week.

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