The Financial Services and Markets Bill (FSM) is a landmark piece of UK government legislation that will significantly change how our country regulates its financial services industry. In particular, the Bill is designed to implement the Future Regulatory Framework (FRF), which is the UK government's answer to the question of what the UK’s post-Brexit financial industry will look like once it is fully decoupled from the European Union (EU) and its laws.
The Bill was announced in May 2022 and since then has been working its way through the country’s two houses of parliament; the House of Commons and the House of Lords. During this process bills can be scrutinised, challenged, changed or even rejected. In December 2022, the Bill had passed the House of Commons with no major amendments made. By June 2023 it was in its final stages of moving through the House of Lords.
Why the Financial Services and Markets Bill matters
The FSM has been called a “once-in-a-generation” opportunity to update and change the way the UK financial system works. It is the best chance the British public has of ensuring the sector is regulated in a way that furthers its current goals, including ones around protecting and improving our economy, our living standards, and our planet.
The financial sector also has an outsized impact on the environment. In 2019 its lending and investment activities were linked to 805 million tonnes of CO2 emissions globally. That’s almost double the UK’s own annual net total. Indeed, if the UK financial sector was its own country, it would be the 9th most polluting one in the world.
One of the most visceral ways many Britons have felt the influence of the UK financial sector is via the amount of economic harm it caused in the 2008 financial crash. This economic crisis was the result of the global financial sector carelessly creating and poorly regulating a bunch of dodgy financial products, such as subprime mortgages (large loans given to people who were at high risk of not being able to pay them back).
When this house of cards collapsed, the fallout was immense. Governments tried to stem the economic damage by spending billions of pounds bailing out financial institutions, leaving states with more debt and less revenue. Economies around the world dropped into prolonged recessions. Many ordinary people suffered substantially. Between 2008 and 2013, 3.7 million people in Britain lost their jobs. In the first two years of the crisis, there were 1,000 more suicides in the UK than average. A 2018 analysis by the Institute of Fiscal Studies suggested that the crash resulted in average yearly take-home pay for workers being £800 lower - and this calculation does not account for the ways that economic hardship fell disproportionately on the most socioeconomically vulnerable.
Government regulation is the main tool the world has deployed to stop this sort of crisis happening again. How much of a bulwark the FSM is against reckless behaviour from the financial sector is therefore a question that should concern everyone.
Below is a brief overview of the things that the Financial Services & Markets Bill covers and excludes in its current form. It is not a comprehensive list, but these are some of the most important elements.
What the Financial Services & Markets Bill will do:
Devole greater rulemaking power and responsibility to the regulators, specifically the Financial Conduct Authority and the Prudential Regulation Authority.
Update the objectives of the financial services regulators to ensure a greater focus on growth and international competitiveness
Allows the government and PRA to pursue the reform Solvency II so that insurers have lower thresholds for the amount of capital they must hold in reserve
Improve public access to cash
Ensure compensation for some victims of fraud, particularly Advanced Push Payment scams
Give the Treasury the ability to “require the FCA and the PRA to publish information at any time on any requested matters”. This is a watered down version of the call-in powers the government originally wanted to add but dropped after opposition (see below).
What the Financial Services & Markets Bill won’t do:
Give regulators statutory objectives to promote financial inclusion
Give regulators statutory objectives to bring the financial system in line with a net-zero transition
Require vendors to accept cash
Require compensation for victims of some other types of fraud
Give the government a ‘call-in’ power that alllows it to tell regulators to make, change or remove rules if it deems it to align with the public interest. This amendment was introduced to the Bill while it was in the Commons but dropped after concerted opposition from regulators and civil society.