In the House of Lords on June 19, the U.K. Financial Services and Markets Bill (FSMB) legislation aimed at strengthening the country’s financial services industry had its third reading. The bill will now go back to the lower house of parliament for it to consider amendments. The FSMB includes new rules that would bring stablecoins and digital assets under U.K. financial services regulation.
The 340-page bill was introduced in July 2022 to take advantage of Brexit freedoms and give domestic regulators more power over the U.K. financial system. The original version included a proposal to regulate stablecoins under the U.K.’s payments rules, and in October, an amendment was added to recognize digital assets under regulated financial activities.
The October amendment relies on the definition of “crypto asset” as:
“Any cryptographically secured digital representation of value or contractual rights that (a) can be transferred, stored or traded electronically, and (b) that uses technology supporting the recording or storage of data (which may include distributed ledger technology).”
Any asset falling within this definition could be brought within the scope of the Financial Services and Markets Act 2000 (FSMA), the U.K.’s existing financial markets legislation.
According to parliament, the June 19 third reading of the FSMB was part of a plan to “tidy up” the bill, making small changes to “ensure it is effectual.” It will now be up to the lower house of parliament, the House of Commons, to shepherd the bill through its final stage before passing it into law.
One of the goals of the FSMB would be to give U.K. regulators, namely the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), powers to set digital asset rules—rules on which the Treasury began consulting in February.
Proposals in the consultation include establishing an issuance and disclosure regime for digital assets, strengthening the rules that apply to financial intermediaries and custodians of digital assets, and adopting a digital asset-specific market abuse regime.
The Treasury’s consultation ended in April, and it is now considering the responses, but should the proposals be taken up, it would mean bringing digital assets within the scope of the FSMA, as well as adding and adapting rules where necessary.
Should the House of Commons pass the FSMB into law, as is expected, it would be a major step towards a comprehensive regulatory regime for digital assets in the United Kingdom.
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