Understanding the Financial Services & Markets Act 2023

Posted by

Ian Hare

on 20 Jul 2023

The government's new Financial Services and Markets Act 2023 introduces game-changing legislation that promises to reshape how businesses operate.

Financial Services & Markets Act 2023

In an ever-evolving financial landscape, regulatory frameworks ensure stability and transparency within the financial services industry.

What is the Financial Services & Markets Act 2023?

The Financial Services & Markets Act 2023 (FSMA 2023) aims to reform and strengthen the UK's financial regulatory framework. Set to replace the existing Financial Services and Markets Act 2000 (FSMA 2000) at a yet-unspecified time; its primary goal is to tackle emerging challenges, boost consumer protection, and nurture innovation within the post-Brexit financial services sector.

At its heart, FSMA 2023 empowers regulators, such as the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), to enforce the regulatory framework more effectively.

One of its key objectives is to enhance consumer protection by introducing stricter measures to ensure customers are treated fairly and prevent financial misconduct.

Additionally, it recognises the ever-growing importance of technology and innovation in finance by encouraging the adoption of fintech advancements, promoting digital transformation, and supporting new and innovative business models.

FCA Webinar - Shaping Digital Markets

What's changed from FSMA 2000?

FSMA 2023 introduces several changes and reforms compared to FSMA 2000, including:

  • Expanded regulatory oversight
    It gives regulatory bodies like the FCA and PRA greater powers, allowing them to enforce the regulatory framework more effectively and take stronger action against non-compliant firms, like higher penalties and sanctions for breaching regulations.
  • Stricter consumer protection measures
    Places more emphasis on consumer protection through introducing enhanced disclosure requirements, improved transparency in financial products and services, and measures to combat unfair practices.
  • Licensing and registration reforms
    Simplifies and updates the authorisation process for financial institutions to make it more efficient. It also ensures that only qualified and reliable organisations are authorised to operate in the market through risk-based assessments, competency evaluations, and a commitment to ongoing professional development.
  • Embracing technological innovation
    Encourages the adoption of fintech advancements, promotes digital transformation, and supports new, emerging business models. It aims to strike the right balance between fostering innovation and maintaining regulatory oversight to reduce the risks associated with advancing technology.

Consumer Duty Outcomes Desk Aid

What are the new regulations in FSMA 2023?

One notable new regulation within the Financial Services and Markets Act 2023 is the Designated Activities Regime (DAR). It introduces a framework regulating specific financial activities that pose a risk to the financial system or consumers.

Activities covered by the DAR can include lending, investment services, operating multi-lateral trading facilities, and providing custody or safekeeping services. If you offer any of these services, you'll need to ensure you meet specific requirements, such as getting appropriate authorisations, meeting capital requirements, and complying with Conduct of Business rules.

FSMA 2023 also gives the Bank of England (BoE) more rule-making power over – and the ability to impose requirements on – recognised central counterparties (CCPs) and central securities depositaries (CSD) as part of the BoE CCP/CSD regime.

CCPs act as intermediaries in financial transactions, managing risks to ensure smooth trading. CSDs provide the infrastructure for holding and transferring securities like stocks and bonds.

Other important existing regulations falling under the FSMA 2023 umbrella include the following:

  • The Senior Managers and Certification Regime (SMCR), enhances individual accountability and defines senior management responsibilities.
  • The Digital Regulatory Reporting (DRR) framework streamlines reporting processes through digital solutions.
  • The Financial Stability and Resolution Regime (FSRR), gives authorities more powers to identify and manage potential risks to financial stability, including dealing with failing financial institutions.
  • Regulations around environmental, social, and governance (ESG) reporting requiring regulated firms to reveal relevant information on their environmental and social impact, as well as governance practices.

SMCR Implementation Best Practice Guide

What are the top five key takeaways?

So how does FSMA 2023 impact FCA-regulated businesses, and how can you ensure you stay on the right side of the new legislation?

  1. Put consumer protection first.
    It's all about treating customers fairly, being transparent, and avoiding any misleading practices. Review your processes, products, and communications to ensure they meet the new requirements, and respond quickly to any customer complaints you receive.
  2. Check your licence and registration.
    Changes to licensing and registration requirements mean you should look again at your existing licenses and registration status. Make sure they comply with the updated rules and make any necessary amends or submit new applications so you can continue operating within the regulated framework.
  3. Embrace tech advances.
    FSMA 2023 is a green light to bring in new and innovative technology. Consider how you can incorporate fintech advances, do more business digitally and explore new business models. But proceed with care. You still need to stay compliant, so prioritise data protection, cybersecurity, and operational resilience throughout.
  4. Step up reporting and disclosure.
    The new regulations introduce more obligations to enhance transparency and support effective regulatory oversight, covering areas such as risk management, capital adequacy, liquidity, and compliance. If needed, improve your reporting systems and processes to meet the requirements and ensure you give accurate and timely reports to the relevant authorities.
  5. Be proactive around compliance and risk management.
    With FSMA 2023 granting enhanced enforcement powers, keep an eye on regulatory developments, review your internal policies and procedures, and make sure you have effective compliance frameworks in place.
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