The following posts provide a snapshot of selected UK, EU and global financial regulatory developments of interest to banks, investment firms, broker-dealers, market infrastructures, asset managers and corporates.
-
Joint EU Guidelines on Suitability of Management Body Members and Shareholders for Entities Under the Markets in Crypto-Assets Regulation
June 27, 2024
The European Banking Authority and European Securities and Markets Authority have published joint guidelines on the suitability of members of the management body, and on the assessment of shareholders and members with qualifying holdings for issuers of asset-referenced tokens and crypto-asset service providers, under MiCAR. The guidelines are part of the EBA and ESMA's ongoing efforts to foster a transparent, secure, and well-regulated crypto-assets market, and complement the recently published governance package.
Read more.Topic : FinTech -
European Banking Authority Publishes Package of Draft Regulatory and Implementing Technical Standards and Guidelines under the EU Markets in Crypto Assets Regulation
June 19, 2024
The European Banking Authority has published its final package of regulatory and implementing technical standards and guidelines under the EU Markets in Crypto Assets Regulation. The package consists of:- final draft RTS, which specify the methodology to be applied by issuers of asset-referenced tokens and non-EU currency denominated e-money tokens for estimating the number and value of transactions associated with uses of these tokens "as a means of exchange", for the purpose of the reporting under MiCAR;
Topic : FinTech -
European Banking Authority Publishes Regulatory Products under the Markets in Crypto-Assets Regulation
June 13, 2024
Under the Markets in Crypto-Assets Regulation, the European Banking Authority has published a package of technical standards and guidelines on prudential matters, namely own funds, liquidity requirements, and recovery plans. The package of EBA regulatory products includes the following:- Final draft regulatory technical standards specifying adjustment of own funds requirement and minimum features of stress testing programs of issuers of asset-referenced tokens and of e-money tokens subject to such requirements.
- Final draft RTS specifying the procedure and timeframe for an issuer to adjust the amount of its own funds to three percent of the average amount of the reserve of assets when the relevant issuer is issuing an ART or EMT classified as "significant."
Topic : FinTech -
UK Financial Conduct Authority Outlines Future of UK Digital Regulation
04/22/2024
The U.K. Financial Conduct Authority's Chief Executive, Nikhil Rathi, gave a speech on April 22, 2024, setting out the priorities of the Digital Regulation Cooperation Forum. The DRCF brings together the FCA, the Competition and Markets Authority, the Information Commissioner's Office and Ofcom to facilitate collaboration on digital regulation.
Read more.Topic : FinTech -
UK Legal Statement on Digital Assets and English Insolvency Law
04/22/2024
The UK Jurisdiction Taskforce (UKJT) has published a Legal Statement on Digital Assets and English Insolvency Law. The main findings are that digital assets are within the definition of "property" in the U.K. Insolvency Act 1986. Despite this, because digital assets are not treated as such, it is not possible to serve a valid statutory demand for a digital asset debt. Nevertheless, a claim to digital assets held by a company or bankrupt individual can (in principle) be a claim to recover property, depending on how the assets are held. In addition, where jurisdiction is to be determined by reference to the Centre of Main Interests, the English courts will apply the existing test to establish the COMI of a company dealing in digital assets. There are existing rules that can be applied to allocate any shortfalls where digital assets belonging to different persons have been pooled. Digital assets do not require a fundamental change to the legal analysis of tracing, mixed accounts and shortfalls (although the technical structure of digital assets may be relevant). The rules in the FCA's Client Assets Sourcebook are unlikely to apply since digital assets are not considered to be money.
The UKJT has previously published two other legal statements relevant to digital assets and cryptocurrencies. The Legal Statement on the Status of Cryptoassets and Smart Contracts was published in November 2019, the analysis of which has been adopted by the courts (e.g., AA v Persons Unknown & Ors, Re Bitcoin [2019] EWHC 3556 (Comm)). The Legal Statement on the Issuance and Transfer of Digital Securities under English private law was published in February 2023.Topic : FinTech -
UK Proposes Design of the Future Entity for UK Open Banking
04/19/2024
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. -
UK Regulators Consult on Digital Securities Sandbox
04/15/2024
On April 3, 2024, the Bank of England and U.K. Financial Conduct Authority published a joint consultation paper on proposed rules for the incoming digital securities sandbox. The Financial Services and Markets Act 2023 (discussed in our client note, A Boost for UK Financial Services) empowered HM Treasury to establish sandboxes to facilitate the use of digital assets in financial markets. HM Treasury confirmed its approach to the DSS, which is the first such sandbox, in December 2023. The DSS will offer eligible firms a modified set of rules and regulations for a period of five years, enabling them to test out services using technology such as distributed ledger technology and give the regulators time to finesse a regulatory regime. It is hoped that digital securities could bring advantages, such as streamlining processes and reducing settlement risk and settlement times.
Read more. -
Law Commission Publishes Consultation on Digital Assets as Personal Property
02/22/2024The Law Commission, a U.K. body which makes suggestions for legislative reform, is consulting on wording for a possible draft piece of legislation establishing a third category of personal property that would encompass "digital assets". English law currently recognizes "things in possession" (i.e., physical assets) and "things in action" (i.e., intangible assets). In case law to date, for example AA v Persons Unknown [2019] EWHC 3556 (Comm) and at least 23 other cases, the English courts have had no trouble in identifying, or accepting, various kinds of crypto-assets as constituting property, despite the fact they are neither things in possession nor things in action. However, coverage for asset classes is somewhat patchy, leading to some legal uncertainties. The Law Commission consulted on potential reforms to the law surrounding digital assets in July 2022, publishing a final report in June 2023 which found that, while the common law should be the primary forum for law reform in this area, it should be supplemented with legislation confirming that digital assets are capable of attracting personal property rights. This follows the approach in certain other jurisdictions, which have legislated on the topic - Japan, for example, has arguably brought crypto-tokens within the sphere of property law via amendments to its Payment Services Act, while Liechtenstein has enshrined tokens in legislation as a new form of legal object. A number of other jurisdictions, including Hong Kong, Singapore and New Zealand, have developed case law finding digital assets can attract property rights but have not so far confirmed this in legislation.
Read more.Topic : FinTech -
Law Commission Publishes Call for Evidence on Digital Assets and Electronic Trade Documents in Private International Law
02/22/2024
The Law Commission, a U.K. body which makes suggestions for legislative reform, has published a call for evidence on the operation of English private international law (conflicts of law rules) in relation to digital assets and "electronic trade documents" (trade documents like bills of lading and bills of exchange that are in electronic form).
Read more.Topic : FinTech -
European Securities and Markets Authority Consults on Guidelines on Reverse Solicitation and Cryptoassets as Financial Instruments under the EU Markets in Crypto Assets Regulation
02/08/2024
The European Securities and Markets Authority has published two consultation papers on proposed guidelines under the EU Markets in Crypto Assets Regulation, one on reverse solicitation and the other on the classification of crypto-assets as financial instruments. Responses to the consultation papers should be submitted by April 29, 2024. ESMA plans to publish final reports on each of the guidelines by the end of 2024 at the latest.
Read more.Topic : FinTech -
UK Legislates to Implement the Digital Securities Sandbox
01/12/2024
Legislation implementing the U.K.'s first digital sandbox – the Financial Services and Markets Act 2023 (Digital Securities Sandbox) Regulations 2023 – came into force on January 8, 2024. The DSS Regulations enable the Digital Securities Sandbox to be established. The regulators are expected to consult soon on the proposed application process and rule changes.
U.K. recognized investment exchanges, recognized central securities depositories and investment firms that are licensed to operate a multilateral trading facility or organised trading facility, as well as any other U.K. firms identified by the Financial Conduct Authority or Prudential Regulation Authority, may participate in the FMI sandbox as a "sandbox entrant". Sandbox arrangements carried out by a sandbox entrant must relate to either the activity of operating a trading venue or carrying on maintenance, notary or settlement functions in relation to in-scope instruments, or be ancillary to those activities. In addition to the ability of the primary sandbox entrant to carry out those activities within the sandbox, the following classes of firms may participate in FMI sandbox arrangements: firms using the services provided by the sandbox entrant; firms providing services to the sandbox entrant or its users; and firms carrying on activities or providing services in connection with an in-scope instrument used in connection with the FMI sandbox arrangements. By including this third class of firms, firms would be allowed to provide services that are ancillary or complementary to trading and settlement activities, such as clearing, within the sandbox.
Read more. -
International Organization of Securities Commissions Publishes Recommendations on Decentralized Finance
01/10/2024
Following its consultation in 2023, the International Organization of Securities Commissions published its Policy Recommendations for Decentralized Finance on December 19, 2023. The nine recommendations are intended to promote consistency of global regulatory frameworks for DeFi in the interests of market integrity and investor protection.
Read more.Topic : FinTech -
International Organization of Securities Commissions Publishes Recommendations for Crypto and Digital Assets Markets
01/08/2024Following its consultation in 2023, the International Organization of Securities Commissions published its Policy Recommendations for Crypto and Digital Asset Markets on November 16, 2023. The 18 recommendations are intended to promote consistency of regulatory frameworks for cryptoasset service providers. The recommendations apply to both cryptoassets and stablecoins, although regulators are encouraged to consider any particular issues posed by stablecoin arrangements when applying the recommendations.
Read more.Topic : FinTech -
HM Treasury Confirms Approach to Digital Securities Sandbox
12/12/2023
Following its consultation earlier this year, HM Treasury has published a response to its consultation on the Digital Securities Sandbox, confirming that it will mostly adopt the approach consulted on to establish the DSS. The DSS, which will be the first sandbox to be established using new powers granted by the U.K. Financial Services and Markets Act 2023, is intended to facilitate the use of digital assets in financial markets. The DSS is designed to allow firms to: (i) establish and operate FMIs using digital asset technology; and (ii) perform the activities of central securities depositories and trading venues in relation to existing security classes.
HM Treasury intends to lay before Parliament draft legislation to implement the DSS, which will be run by the Financial Conduct Authority and the Bank of England. The regulators will be consulting soon on their proposed approaches to the DSS, including the application process and proposed rule changes.
Read more. -
UK Regulators Propose Rules for Supervising Critical Third Parties
12/12/2023
Following feedback to their July discussion paper, the U.K. regulators—the Bank of England, Prudential Regulation Authority and Financial Conduct Authority—have launched a joint consultation proposing rules and regulatory expectations for critical third parties. This follows concerns that the financial sector relies heavily on unregulated service providers, particularly in the IT sector, for critical infrastructure whose failure could cause systemic issues or customer issues. The Financial Services and Markets Act 2023 gave HM Treasury powers to designate an entity as a "critical third party" if its failure would pose financial stability or confidence risk to the U.K. and the regulators will have new direct powers over third parties that provide critical services to authorized firms, their service providers and financial market infrastructures. The regulators' rules would only apply to the services provided by a CTP to one of those firms. Responses to the consultation may be submitted until March 15, 2024.
Read more. -
UK Future of Payments Review Report Published
11/29/2023
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.
Read more. -
Bank of England Proposes Regulatory Regime for Systemic Payment Systems Using Stablecoins
11/27/2023
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.
Read more. -
UK Prudential Regulator Sets Out Expectations for Banks Innovating in Digital Money
11/27/2023
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.
Read more. -
UK Conduct Authority Consults on Regulating Fiat-Backed Stablecoins
11/27/2023
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.
Read more. -
HM Treasury Publishes Response to Cryptoasset Regulatory Regime Consultation
11/03/2023
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.
Read more. -
HM Treasury Publishes Plan for Regulation of Fiat-backed Stablecoins
11/03/2023
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.
Read more. -
HM Treasury Publishes Response to Consultation on Managing Failure of Systemic Digital Settlement Asset Firms
11/03/2023
HM Treasury has published a response to its consultation on managing the failure of systemic digital settlement asset firms. DSAs are defined broadly under the Financial Services and Markets Act 2023 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. The FSM Act (discussed in our client note, A Boost for UK Financial Services) granted HM Treasury powers to supervise certain activities related to DSAs. This included the power to apply the Financial Market Infrastructure Special Administration Regime to systemic DSA firms (other than banks, which are covered by existing regulatory frameworks).
Read more. -
Basel Committee Report on 2023 Banking Turmoil
10/20/2023
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.
-
UK Jurisdiction Taskforce Publishes Consultation on Digital Assets and Insolvency Law
10/20/2023
The U.K. Jurisdiction Taskforce has published a consultation relating to its proposed Legal Statement offering guidance on the application of English insolvency law principles to digital assets. The proposed Legal Statement will cover a range of areas which are listed in an Annex to the paper. Respondents are invited to submit comments on these areas, which include: (i) whether digital assets would constitute "property" under English insolvency legislation; (ii) which jurisdictional rules apply to determine the location of digital assets; and (iii) whether any difficulties can be perceived in applying English insolvency legislation to the avoidance of prior transactions to pre-insolvency dealings with digital assets. In addition, respondents are encouraged to inform the UKJT of any material issues of concern to stakeholders in relation to the application of English insolvency law to digital assets, other than those listed in the paper's Annex. Responses should be submitted by December 4, 2023.
The consultation paper follows a series of other publications by the UKJT on legal issues surrounding digital assets, including its Statement on the Issuance and Transfer of Digital Securities under English Law, published in February 2023.Topic : FinTech -
EU Authority Seeks Feedback on Potential Shorter EU Settlement Cycle
10/16/2023
The European Securities and Markets Authority has opened a call for evidence on shortening the settlement cycle in the EU. The existing EU settlement cycle for trades in transferable securities executed on trading venues is by no later than the second business day after the trade takes place, known as T+2. Responses to the call for evidence may be submitted by December 15, 2023. ESMA will report to the European Commission during 2024, although an earlier report may be produced if ESMA considers that regulatory action is needed in response to the move to T+1 or T+0 in other jurisdictions.
ESMA is asking for feedback from financial market participants on the impact on their operations of a reduced securities settlement cycle to T+1 or T+0, what benefits and costs it would bring, and how and when a shorter settlement cycle could be achieved. ESMA considers that the EU landscape is more complex than that in other jurisdictions because there is no centralized EU post-trade financial markets infrastructure and no harmonized securities law. Finally, ESMA seeks input on the impact of developments in other jurisdictions, such as the intended move by the U.S. and Canada to T+1 in mid-2024 and the U.K.'s assessment of changing to T+1 or T+0, an initial report on which is expected by the end of this year (announced as part of the Edinburgh Reforms which are discussed in our client note, "UK Government Publishes Edinburgh Reforms for Financial Services"). -
UK Financial Conduct Authority Publishes Policy Statement on Financial Promotions Gateway
09/20/2023
The U.K. Financial Conduct Authority published a Policy Statement on 12 September 2023 setting out how it intends to implement the new regulatory gateway for financial promotions. The Financial Services and Markets Act 2023 (which we discuss in our client note, "A Boost for U.K. Financial Services") amends the Financial Promotion Restriction, banning authorized firms from approving financial promotions of unauthorized firms unless they have received approval from the FCA to have the prohibition removed in whole or part. The gateway will apply from February 7, 2024, with authorized firms able to apply to the FCA for permission from November 6, 2023 until February 6, 2024. There are exemptions from the gateway, entering into force on September 27, 2023, which permit the approval of financial promotions by authorized firms, for communication by unauthorized firms, in certain circumstances.
Read more. -
UK Joint Money Laundering Steering Group Publishes Guidance on Travel Rule for Cryptoasset Exchange Providers and Custodian Wallet Providers
09/14/2023
The Joint Money Laundering Steering Group has published revisions to its Sector 22 Guidance on Cryptoasset exchange providers and custodian wallet providers along with a new Annex I, setting out guidance on the U.K. Travel Rule for cryptoassets. The Travel Rule was introduced under the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and requires certain identification information on the sender and recipient to accompany a transfer of a cryptoasset. The Travel Rule requirements have applied since September 1, 2023.
Read more. -
Proposed Global Policy Recommendations for Decentralized Finance
09/13/2023
On September 7, 2023, the International Organisation of Securities Commissions launched a consultation on proposed policy recommendations on market integrity and investor protection issues in decentralized finance (DeFi). IOSCO is proposing that the final recommendations, which it aims to finalize before the end of 2023, will help IOSCO members to establish compliant markets. Responses to the consultation may be submitted until October 19, 2023.
Read more. -
UK Conduct Regulator Offers Small Reprieve for Cryptoasset Marketing
09/13/2023
The U.K. Financial Conduct Authority announced on September 7, 2023, that firms may avail themselves of a delay to the application of some rules applying to cryptoasset financial promotions. The FCA published rules for cryptoasset financial promotions in June this year, which will apply from October 8, 2023 (the same date that the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 brings the promotion of cryptoassets within scope of the U.K. regulatory regime). The reprieve is available, on application, to:- firms registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 that intend to communicate cryptoasset financial promotions; and
- authorized firms that intend to communicate or approve cryptoasset financial promotions.
Read more. -
Exemptions from UK Financial Promotions Gateway Published
09/11/2023
The Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023, which come into force on September 27, 2023, set out the exemptions to the new U.K. regulatory gateway for the approval by authorized firms of financial promotions of unauthorized firms. 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") amends the Financial Promotion Restriction, banning authorized firms from approving financial promotions of unauthorized firms unless they have received approval from the Financial Conduct Authority to have the prohibition removed in whole or part. The prohibition will apply from February 7, 2024, according to the Financial Services and Markets Act 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023, which also set out the following timeline for the new regime to come into effect:- September 6, 2023: provisions will apply that enable the FCA to give directions and guidance and to make rules.
- November 6, 2023: provisions will apply that allow the FCA to receive (but not determine) applications to approve financial promotions that are made during the application period (November 6, 2023 to February 6, 2024).
Read more. -
UK Joint Money Laundering Steering Group Proposed Cryptoasset Travel Rule Guidance
08/14/2023
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. -
Financial Stability Board Issues Recommendations for Regulating Cryptoasset Activities and Markets
08/14/2023
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:
Read more -
HM Treasury Publishes Response to Payments Regulation and Systemic Perimeter Consultation
08/14/2023
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.
Read more -
HM Treasury Consults on First Financial Market Infrastructure Sandbox – the Digital Securities Sandbox
08/07/2023
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.
Read more. -
Law Commission Publishes Final Report on Digital Assets
06/28/2023The 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.
Read more.Topic : FinTech -
UK Statutory Instrument Published to Bring Cryptoassets Within Financial Promotions Regime
06/12/2023
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.
Read more. -
UK Financial Conduct Authority Publishes Final Rules on Cryptoasset Financial Promotions
06/12/2023
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).
Read more. -
Proposed Policy Recommendations for Crypto and Digital Asset Markets
06/05/2023
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.Topic : FinTech -
UNIDROIT Publishes Principles on Digital Assets and Private Law
06/05/2023
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.
Read more.Topic : FinTech -
Proposed EU Regulation on Markets in Crypto-Assets Approved by European Parliament
05/02/2023
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.
Read more.Topic : FinTech -
EU Travel Rule for Crypto-Assets Set to Apply from January 2025
05/02/2023
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. -
UK Legal Statement on the Issuance and Transfer of Digital Securities under English Law
02/28/2023
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.
Read more. -
UK Government Publishes its Proposals for Cryptoasset Regulation
02/14/2023
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". -
Bank of England Publishes Consultation Paper on Digital Pound
02/08/2023
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.
Read more.Topic : FinTech -
Final Global Prudential Requirements for Banks' Exposures to Crypto-Assets
12/16/2022
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.
Read more. -
Edinburgh Reforms: Changes to the Laws of the UK Financial Services Sector
12/09/2022
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.
-
UK Financial Conduct Authority Consults on Regulatory Perimeter Guidance for Trading Venues
09/22/2022
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.
Read more. -
UK Conduct Regulator Publishes Policy Statement on Improvements to Appointed Representatives Regime
08/03/2022
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.
Read more. -
UK Jurisdiction Taskforce Publishes Consultation on Transfer of Digital Assets
08/01/2022
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.
Read more. -
Stricter UK Financial Promotion Rules Going Ahead
08/01/2022
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.
Read more.