The Financial Services and Markets Bill (FSM Bill) was presented to Parliament on 20 July. Much touted for the ways in which it implements the findings of HM Treasury (HMT)’s Future Regulatory Framework (FRF) Review, the Bill works to update the regulatory environment for UK financial services in a way that keeps it fit and agile for future developments.
For example, by bringing Digital Settlement Assets into its purview, laying the foundation for further work on stablecoin later in the year. However, the Bill also brought cash within the regulatory perimeter more formally for the first time, both at the access end (withdrawals and deposits) and at the wholesale end. So while on the one hand the Bill looks forward to shiny, new crypto ‘coins’, it also seeks to manage the risks to the ‘effectiveness, resilience and sustainability’ of the real ones.
The two coins are on a very different trajectory. Stablecoins are on the up (despite a current chilly ‘crypto winter’). Across the world, jurisdictions, regulators and government are making plans to formalise the regulatory requirements on digital assets, their providers and exchanges. In the EU, the Markets in Crypto-Assets (MiCA) legislative proposals have just completed trilogue. In the US, attention comes at both state and federal level, and the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have both been particularly active. And while some countries have banned their use entirely (China), others are scrambling to position themselves as a haven for new businesses, growth and jobs (such as South Korea and certain South American countries). The UK is more in the latter camp, having announced an ambition to be a crypto hub. Time will tell the degree to which the new government, led by prime minister Liz Truss, pursues that in earnest.
Real ‘fiat’ cash suffered a marked impact during the pandemic, and though the data shows a stabilisation since, it appears this flattening may be a short-lived reprieve from the systemic decline of the decade prior. In 2021, cash payments decreased by two per cent to 6.0 billion, accounting for 15 per cent of payments – but still the second most commonly-used payment type. Physical cash remains important to a significant minority (1.1 million people in the UK mainly use cash as their preferred payment method). It is because of this that the banking industry has been working hard on access to cash provisions, and we welcome many of the proposals in the FSM Bill to protect access to cash for those that need it.
However, it is not just access to cash that the Bill covers; the extension of the regulatory perimeter to cash also includes the wholesale cash market too (under Schedule 9). The proposals will bring recognised wholesale cash firms into the regulatory perimeter of the Banking Act 2009. The legislation gives the Bank of England powers akin to the ones it has as regulator for existing systemic payment systems in order to manage risks to the effectiveness, resilience and sustainability of wholesale cash distribution.
These extensions of the regulatory perimeter are part of a broader pattern as regulators seek to adjust the regulatory framework post-Brexit, and are likely to continue following the conclusion of the current HMT consultation on the systemic perimeter. We look forward to continuing to work with the regulators to get the new rules right, whether for old or new coin.