As we slowly make our way into the New Year, 2023 is shaping up to be a big year for the introduction of new regulations across the financial industry. What should you keep an eye out for?
With cryptocurrency regulation and digital technologies high up the list of key areas for regulation this year, FinTech Global has taken a look at some of the most important regulations set to be rubber-stamped or moved forward this year.
The Financial Services and Markets Bill
In the UK, the Financial Services and Markets Bill – which passed through the House of Commons in December last year – is expected to receive Royal Assent in Spring. The Bill was originally introduced into Parliament on 20 July 2022.
According to GOV.UK, amongst other things, the Bill will implement the outcomes of the Future Regulatory Framework review, maintain the UK’s position as an open and global financial hub, bolster the competitiveness of UK markets, harness the opportunities of innovative technologies in financial services and promote financial inclusion.
UK Finance claims that the legislation gives the opportunity to create a more competitive financial services sector post-Brexit, while preserving high regulatory standards tailored to the UK’s needs.
It added that this included changes to the framework within which financial services regulators operate, reform of the regime for wholesale capital markets and addressing important issues affecting communities across the country, such as fraud and access to cash.
Markets in Crypto-Assets (MiCA)
No area in financial services has been quite as sought after and as controversial as the cryptocurrency space. After a boom year in 2021, the sector saw a sharp dip in value in 2022, with a blogpost by ECB representatives claiming the turmoil in the industry could cause Bitcoin to have its ‘last stand’ in 2023 and die off.
The Markets in Crypto Assets (MiCA) regulation is expected to enter into law in early 2023, with the legislation expected to bring harmony across EU financial services legislation when it comes to crypto-assets and related services.
Mayer Brown claims the legislation amongst other things will imposes restrictions on the issuance and use of stablecoins. It will also regulate primary market activities and access to the secondary market as well as the provision of certain crypto-related services.
The European Parliament is anticipated to vote on the bill in February 2023. If the bill passes, MiCA will be published in the EU’s Official Journal and then enter into law 20 days later.
The law will generally start to apply after a transitional period of 18 months, meaning that MiCA will most likely take effect no earlier that the third quarter of 2024.
Consumer Duty
On 31 July 2023, Consumer Duty will apply to all new products and services, as well as all current products and services that remain on sale or open for renewal. Following this, it will then come fully into force on 31 July 2024 and apply to all closed products and services.
According to Lewis Silkin, Consumer Duty places an increased emphasis on firms putting the needs of their customers first, by creating a requirement that they do so.
In addition, companies will also need to remember to take into account the FCA’s guidance on the fair treatment of vulnerable customers when considering how to remain compliant.
Silkin added that the Duty will provide ‘heightened protection to consumers, given the potential for them to be exploited by firms and because they are do not always possess the knowledge and experience to make good decisions for themselves’.
EMIR update
The European Markets Infrastructure Regulation (EMIR) saw the publication of new standards back in October 2022, with the set compliance date for the changes being 29 April 2024.
However, the European Securities and Markets Authority (ESMA) has revealed that it will strive to make final versions of the draft validation rules and draft guidelines available soon after the publication of the implementation technical standards/reporting technical standards. The date of such publication is expected to be the first quarter of 2023 at the latest.
The refit of the EMIR legislation will, according to Bloomberg, bring forward the most far-reaching changes since it was brought into law.
They will bring EMIR closer to global reporting standards, delivering a certain degree of harmonization with more than a quarter of reportable fields aligning with the Regulatory Oversight Committee’s Critical Data Elements, as well as normalise reporting formats across trade repositories (TR) with the introduction of a new ISO 20022 message format for reporting, reconciling and accessing TR data.
Sustainable Finance Disclosures Regulation
While crypto experienced a bull market in 2021 and a significant bear market in 2022, one area of financial services unlikely to see such instability is the fledging Environment, Social and Governance (ESG) sector.
One significant piece of legislation coming from the ESG space is in the EU, with the Sustainable Finance Disclosures Regulation coming into force on January 1, 2023. This law was formally adopted by the European Commission on April 6, 2022.
The EC said, “Under these rules, financial market participants will provide detailed information about how they tackle and reduce any possible negative impacts that their investments may have on the environment and society in general.”
To ensure that companies are keeping up with their responsibilities and requirements in relation to ESG, firms are required to publish disclosures on 30 June each year.
Such a statement must cover the entire 1 January – 31 December period from the previous year and must be kept up to date and clearly mention date of publication and dates of updates.
UK ESG regulation
Elsewhere in the ESG market, the UK has revealed it is set to launch a consultation on regulation of ESG ratings in the first quarter of this year as a part of a package of reforms put forward by Chancellor Jeremy Hunt.
Responsible Investor highlighted that part of the package will set out a new green finance strategy early this year, as well as to consult on bringing ESG ratings providers within the ‘regulatory perimeter’ in Q1.
