FINANCIAL SERVICES BILL EXPLANATORY NOTES What these notes do These Explanatory Notes relate to the Financial Services Bill as introduced in the House of Commons on 21 October 2020 (Bill 200). ● These Explanatory Notes have been prepared by HM Treasury in order to assist the reader and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament. ● These Explanatory Notes explain what each part of the Bill will mean in practice; provide background information on the development of policy; and provide additional information on how the Bill will affect existing legislation in this area. ● These Explanatory Notes might best be read alongside the Bill. They are not, and are not intended to be, a comprehensive description of the Bill. Bill 200–EN 58/1 Table of Contents Subject Page of these Notes Overview of the Bill ............................................................................................ 5 Policy background............................................................................................... 5 Prudential regulation of credit institutions and investment firms .................................... 5 Investment Firms Prudential Regime 5 The Basel III Standards 7 Implementation of the Basel standards in the UK 8 Benchmarks .............................................................................................................................. 10 LIBOR transition 10 Extension of the transitional period for benchmarks with non-UK administrators 14 Access to Financial Services Markets ................................................................................... 15 Market access arrangements for financial services between the UK and Gibraltar 15 Overseas Funds Regime 21 Markets in Financial Instruments Regulation ..................................................................... 26 Cancellation of permission to carry on regulated activity ................................................ 26 Changes to the Financial Conduct Authority’s cancellation of authorisation process 27 Insider dealing and money laundering etc. ........................................................................ 28 Amendments to the Market Abuse Regulation 28 Extending the maximum criminal sentence for market abuse 29 Application of money laundering regulations to overseas trustees 30 Debt Respite Scheme .............................................................................................................. 31 Statutory Debt Repayment Plan 31 Help-to-Save ............................................................................................................................ 31 Successor accounts for Help-to-Save savers 31 Miscellaneous .......................................................................................................................... 32 Amendments to the PRIIPs Regulation 32 Over the counter derivatives: clearing and procedures for reporting 34 Regulations about financial collateral arrangements 35 Appointment of the Chief Executive of the Financial Conduct Authority 35 1 These Explanatory Notes relate to the Financial Services Bill as introduced in the House of Commons on 20 October 2020 (Bill 200) Legal background .............................................................................................. 36 Prudential regulation of credit institutions and investment firms .................................. 36 Investment Firms Prudential Regime 36 The Basel III Standards 38 Benchmarks .............................................................................................................................. 39 LIBOR transition 39 Extension of Transitional Period for benchmarks with non-UK administrators 42 Access to Financial Services Markets ................................................................................... 42 Market access arrangements for financial services between the UK and Gibraltar 42 Overseas funds regime 44 Market in Financial Instrument Regulations 45 Changes to the FCA’s deauthorisation procedure ............................................................. 46 Amendments to the Market Abuse Regulation .................................................................. 46 Extending the maximum criminal sentence for market abuse ......................................... 47 Amendments to the Sanctions and Anti-Money Laundering Act 2018 .......................... 47 Statutory debt repayment plan ............................................................................................. 47 Successors accounts for Help-to-save .................................................................................. 47 Amendments to the PRIIPS Regulations ............................................................................. 48 Over the counter derivatives: clearing and procedures for reporting ............................ 48 Regulations about financial collateral arrangements ........................................................ 49 Appointment of the Chief Executive of the Financial Conduct Authority..................... 50 Territorial extent and application .................................................................... 51 Commentary on provisions of Bill ............................................................... 52 Part 1: Prudential regulation of credit institutions and investment firms ...................... 52 Part 2: Benchmarks ................................................................................................................. 58 Part 3: Access to Financial Services Markets ....................................................................... 66 Part 4: Cancellation of permission to carry on regulated activity.................................... 72 Part 5: Insider dealing and money laundering etc ............................................................. 73 Part 6: Debt Respite Scheme .................................................................................................. 74 2 These Explanatory Notes relate to the Financial Services Bill as introduced in the House of Commons on 20 October 2020 (Bill 200) Part 7: Help-to-Save ................................................................................................................ 74 Part 8: Miscellaneous .............................................................................................................. 75 Part 9: General ......................................................................................................................... 77 Schedule 1: Exclusion of certain investment firms from Capital Requirements Regulation: consequential amendments .............................................................................. 78 Part 1: Amendments of the Capital Requirements Regulation 78 Part 2: Consequential amendments of the Capital Requirements (Country-by-Country Reporting) Regulations 2013 78 Schedule 2: Prudential regulation of FCA investment firms ............................................ 78 Part 1: New Part 9C of the Financial Services and Markets Act 2000 78 Part 2: Transitional provision 82 Part 3: Further amendments of the Financial Services and Markets Act 2000 83 Schedule 3: Prudential regulation of credit institutions etc. ............................................. 83 Part 1: New Part 9D of the Financial Services and Markets Act 2000 83 Part 2: PRA’s power to make rules in relation to certain holding companies 85 Part 3: Minor and consequential amendments of other enactments 86 Part 4: Transitional provision 86 Schedule 4: Amendments of the Capital Requirements Regulation ............................... 87 Schedule 5: Benchmarks: minor and consequential amendments ................................... 88 Schedule 6: Gibraltar-based persons carrying on regulated activities in the UK .......... 89 Part 1: Interpretation 89 Part 2: Approved activities 89 Part 3: Permission to carry on an approved activity 91 Part 4: Variation of permission 93 Part 5: Cancellation of permission 94 Part 6: Requirements 95 Part 7: Changes – Duty to notify UK regulators of changes 97 Part 8: UK regulators’ directions about information 98 Part 9: Transition on withdrawal of approval of regulated activity 98 Part 10: Transition on cancellation of UK or Gibraltar permission 100 Part 11: Policy statements 102 Part 12: Consultation etc by UK regulators 102 3 These Explanatory Notes relate to the Financial Services Bill as introduced in the House of Commons on 20 October 2020 (Bill 200) Part 13: Cooperation and assistance 102 Part 14: Special cases 103 Schedule 7: UK-based persons carrying on activities in Gibraltar ................................ 103 Part 1: Interpretation 103 Part 2: Permission to carry on activities in Gibraltar 104 Part 3: Variation of permission 105 Part 4: Cancellation of permission 106 Part 5: Public record, consultation and consent 106 Part 6: Special cases 106 Schedule 8: Gibraltar: minor and consequential amendments ...................................... 107 Schedule 9: Collective investment schemes authorised in approved countries .......... 108 Part 1: Provisions to be inserted in Chapter 5 of Part 17 of the Financial Services and Markets Act 2000 108 Part 2: Minor and consequential amendments 115 Schedule 10: Amendments of the Markets in Financial Instruments Regulation ....... 117 Commencement ............................................................................................... 119 Financial implications of the Bill ..................................................................