Key Facts

• Amendment 22 seeks to include cryptoassets in financial instruments under the Financial Services and Markets Act 2000.
• New clause 14 aims to create a comprehensive regulatory framework for cryptoassets.
• The amendment will enable HM Treasury to regulate trading and investment activities related to cryptoassets such as Bitcoin and Ethereum.
• Amendment 22 clarifies that cryptoassets are within scope of the designated activities regime introduced by clause 8.
• New clause 14 ensures that cryptoassets will be treated like other financial assets under the Financial Services and Markets Act 2000.
• The Treasury will consult industry and stakeholders before using powers to bring new cryptoasset activities into regulation, subject to affirmative procedure in Parliament.
• Amendment 35 aims to allow for personal liability of nominated representatives in cases where organisations are found liable.
• The amendment targets unscrupulous company directors who hide their ill-gotten gains through liquidation or moving funds into offshore companies.
• Victims of Blackmore Bond and Safe Hands Plans have not recovered their lost money despite regulatory processes taking years.
• The statement discusses proposed new section 71P under FSMA which allows the Treasury to make regulations concerning liability and compensation in relation to designated activities.
• Maria Miller advises focusing on amendment 35 before moving onto clause 8 discussions later.
• Amendment 36 aims to remove the Treasury’s power to modify legislation of devolved legislatures for designated activity regulation purposes.
• Amendment 36 falls during the discussion.
• Maria Miller urges the hon. Member for Glenrothes not to press a similar amendment (amendment 37).
• The Committee discusses that schedule 3 will be the Third schedule to the Bill.
• Clause 8 introduces the Designated Assets Regime (DAR) under FSMA.
• The DAR allows the Treasury to designate certain financial activities and make regulations in relation to them, or prohibit them if necessary.
• Proposed new section 71Q of FSMA gives the Treasury power to confer supervisory and enforcement powers on the FCA.
• The Bill aims to establish a comprehensive FSMA model when retained EU law is revoked.
• Clause 9 gives the Bank of England rule-making powers over CCPs and CSDs.
• Clause 10 allows the Bank to direct individual CCPs and CSDs to comply with obligations or protect financial stability.
• Clause 12 restricts Treasury's power over the Bank in regulating CCPs and CSDs.
• Witnesses from FCA and PRA have raised concerns over clause 12.
• Clause 12 allows the Treasury to direct or force regulators to make or amend rules.
• There are concerns about undermining operational independence of financial regulators.
• Amendment 38 is proposed to Clause 14.
• The amendment aims to include the views of the appropriate regulator in Treasury reports on FMI sandbox arrangements.
• Clauses 14 to 17 are confirmed to stand part of the Financial Services and Markets Bill.
• Clauses 13 to 17 enable the Treasury to establish FMI sandboxes via negative statutory instruments.
• Schedule 4 provides an illustrative list of provisions for setting up FMI sandboxes.
• Clause 14 requires the Treasury to prepare and publish reports on each sandbox's arrangements before Parliament.
• Clause 15 allows permanent legislative changes based on sandbox outcomes using different scrutiny procedures depending on the significance of legislation amendments.
• Clause 16 enables the conferral of powers on regulators via statutory instruments after consultation with appropriate parties.
• The provisions aim to allow financial services innovation within regulatory sandbox arrangements.
• Hon. Members request clarity on consultation with regulators and practical applications of the clauses.
• Concerns raised over the inclusion of unregulated service providers in FMI sandboxes.
• The Financial Services and Markets Bill includes clauses for financial service sandboxes.
• Clause 15 allows for implementation of sandbox activities without waiting for pilot completion.
• Amendment 38 addresses transparency issues with regulators' assessments during the test period.
• Financial services firms rely on a small number of critical third parties for essential services.
• Risks include systemic impacts affecting market confidence and financial system stability due to failures or disruptions in critical third-party services.
• Clause 18 grants the Treasury power to designate third parties as critical, with criteria including materiality and concentration.
• Regulators gain new rule-making powers to ensure resilience of services provided by designated critical third parties.
• Amendment 39 aims to prevent operators from seeking alternative approvals if one authorised person denies approval.
• The Financial Conduct Authority (FCA) would need to provide written consent for another authorised person to approve a communication rejected by the initial authorised person.
• Peter Grant raises concerns about authorised persons being part of fraudulent schemes and going out of business after approving non-compliant promotions.
• Clause 20 creates a new regulatory gateway specifically for firms engaged in harmful financial promotions.
• The Financial Conduct Authority will consult on the details of the regulatory gateway before the end of 2022.
• Schedule 5 amends FSMA to expand the definition of 'regulated financial services' and bring all financial promotion activity within FCA oversight.
• Clause 20 ordered to stand part of the Bill.
• Schedule 5 agreed to.
• Further consideration was adjourned until Thursday 27 October at half-past Eleven o'clock.