Legal development

Financial Services and Markets Act 2023: Setting out the post Brexit framework for financial services

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    The Financial Services and Markets Act 2023 has been published following Royal Assent on 29 June 2023. The Financial Services and Markets Act Bill was first introduced in July 2022 (see our briefing here) and is the most significant piece of post-Brexit legislation since the Financial Services Act 2021. It contains provisions affecting a broad range of areas, including: UK MiFID; critical third parties; the financial promotions regime; a new Designated Activities Regime; and the regulation of cryptoassets and stablecoins used as payments. It provides a framework for revoking retained EU law (REUL) and replacing it with UK-specific legislation and regulation. The Bill also implements many of the aspects of the Government's Future Regulatory Framework (FRF).


    The Act has a staggered implementation, with certain provisions having come into force on 29 June 2023 and 11 July 2023,  while others will come into force on 29 August 2023 and 1 January 2024. Other provisions have not been given commencement dates.

    Section 86 of FSMA sets out the commencement of certain provisions, while other provisions enter into force on a date to be specified in regulations. The Financial Services and Markets Act 2023 Commencement Regulations 2023 (SI 2023/779) were published on 11 July 2023 and provide an indication as to manner of implementation.

    Retained EU law

    The Act provides a framework for the implementation of the FRF by enabling a comprehensive FSMA model (see our other briefing), so that in respect of areas currently provided for in REUL, the Government and Parliament will establish the framework and objectives for the regulators, while the regulators will design the rules that apply to firms.

    Schedule 1 to the Act contains provisions to be repealed including: 

    • retained direct principal EU legislation (e.g. UK MiFIR; UK SFTR; UK PRIIPs and UK MAR)
    • subordinate legislation i.e. legislation implementing of transposing EU obligations  (e.g. the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2017 (SI 2017/701));
    • EU tertiary legislation and subordinate legislation made under EU directives; primary legislation (i.e. certain sections of FSMA 2000); and
    • other EU-derived legislation.

    As explained in our other briefing, the Government envisages a staged and sequential approach to dealing with REUL and does not expect to revoke individual parts of the Schedule unless the replacing framework (where necessary) is in place. 

    Section 2 and section 3 of the Act allow for transitional changes to be made to the REUL while it is in the transitional period (the transitional period is the period between when the Act come into force and when the legislation in question is eventually revoked). Provisions concerning transitional amendments are in Schedule 2 to FSMA 2023. Transitional amendments to REUL include amendments to UK MiFID (see below) to effect aspects of the Wholesale Markets Review and amendments to UK EMIR in relation to post-trade reduction service.

    The Treasury also has the power to make further transitional changes to legislation contained in Schedule 1 where it considers it necessary/desirable to do so in connection with purposes listed in the Act, such as promoting the effectiveness of financial markets; protecting public funds; and promoting and enhancing the integrity or stability of the financial system. The power to amend REUL may also be used for technical purposes, such as making REUL clearer.

    In respect of the treatment of REUL, the following approaches are envisaged:

    • repeal the provision without replacement;
    • restate the provision in UK legislation or repeal and replace it with relevant regulatory rules; and
    • make substantive changes (usually with a mixture of legislation and regulatory rules) to the requirements contained in the provision.

    The Financial Services and Markets Act 2023 (Commencement No 1) Regulations 2023 repeal around 100 pieces of secondary legislation (including the Financial Services and Markets Act 2000 (Markets in Financial Instruments) Regulations 2007 (S.I. 2007/126)).

    Accountability of the regulators

    Chapter 3 of the Act implements a number of aspects of FRF relating to improving the accountability of regulators. The provision that has perhaps gained the most attention is the secondary objective for the FCA and the PRA  to facilitate the international competitiveness of the UK economy and its medium to long-term growth, subject to aligning with relevant international standards. The FCA has already published a webpage in respect of this,  setting out how its work will support the delivery of the secondary objective and its approach for reporting on progress.  

    Oher measures include a requirement for the FCA and PRA to keep their rules under review and to issue statements on how these reviews are carried out. The FCA has since published its draft Rule Review Framework setting out how it plans to monitor and review how its rules are working. 

    The Act also contains provisions concerning scrutiny and public engagement, such as requiring the PRA and the FCA to publish statements on their approach to cost benefit analysis; and requiring the regulators to notify Parliamentary select committee when publishing a consultation. The Act also gives HM Treasury the power to require the regulators to “have regard” to aspects specified by HM Treasury when they are making rules, and to explain how this has influenced their rules.

    Designated activities regime

    Section 8 and Schedule 3 of the Act introduce the Designated Activities Regime, a framework for regulation designed to co-exist with the regulated activities authorisation regime.  The target of the regime are activities where it may be disproportionate to bring them within RAO and the initial focus will be on activities contained in REUL but could be expanded to other areas. 

    The Government considers that many pieces of retained EU law contain rules for a kind of activity, product, or conduct that are not FSMA regulated activities, and which apply to a broader range of entities (e.g. margin rules for derivative contracts) than FSMA authorised persons. The FCA currently supervises and enforces some these activities but lacks rule-making powers for them in relation to unauthorised persons. It was argued that including these activities within the regulated activities regime, and therefore subject to the general prohibition in section 19 of FSMA, would be a disproportionate approach.

    DAR provides a power for HM Treasury to designate activities relating to financial markets, exchanges, instruments, products, or investments, in secondary legislation. Under the regime, HM Treasury can make some requirements directly, and indicate where the activities must be performed in line with rules made by the FCA. The FCA's rule making power under the DAR would apply in relation to the designated activity, but not the other unrelated activities of the person undertaking the designated activity. Where an activity has been designated, anyone undertaking that activity must follow the rules for that activity, unless they are exempt.  Areas subject to DAR include entering into a derivatives contract (including those not cleared by a central counterparty); holding positions in commodity derivatives; issuing an instrument which references a benchmark;  and acting as a benchmark contributor.

    As stated in our other briefing, the Government expects to introduce an SI in relation to DAR.

    Authorised push payment fraud (APP fraud)

    APP fraud occurs when an individual  is tricked into making a payment to a fraudster under false pretences e.g. authorising a payment to a person for something they believe at the time is a legitimate purchase. This is different to unauthorised payment fraud, where money is taken from someone’s account without their knowledge or consent. 

    Section 72 of the Act amends Regulation 90(1) of the PSRs 2017 to provide that nothing in regulation 90 affects the liability of a payment service provider where the PSR has exercised its regulatory powers in relation to APP scams. Regulation 90 provides that where a payment service provider has executed a payment in accordance with the unique identifier (for example, the sort code and account number) provided by the payer, then the payment is deemed to have been correctly executed. The amendment will allow the PSR to require mandatory reimbursement. The Act also requires the PSR to take regulatory action on APP scam reimbursement by participants in the Faster Payments Service, by requiring the regulator to consult on a draft regulatory requirement.

    These provisions come into force on 29 August 2023.

    Digital assets

    The Act gives HM Treasury a power to bring digital settlement assets used for payments within the UK regulatory perimeter (i.e. fiat stablecoins), so that the existing payments regulatory regime will be extended to cover issuers of stablecoins and entities providing related services (introducing an authorisation regime in respect of services).

    Section 69 of Act includes provisions bringing cryptoassets within the scope of provisions in FSMA concerning financial promotions and regulated activities regime. Section 69 also amends FSMA to introduce a definition of cryptoassets.

    Sections 13 to 17 and Schedule 4 to the Act contain provisions permitting HM Treasury to establish one or more FMI sandboxes, which will enable participating firms to test and adopt new technologies and practices. Schedule 4 contains details of other provisions that the FMI sandbox may make (including technology, practices, financial instruments (e.g. descriptions of financial instruments that may be traded, limitations on trading of FMI sandbox instruments), settlement of payments, transparency and reporting. The Government has published a consultation on the first FMI sandbox under the FSMA 2023, the Digital Securities Sandbox. The FMI Sandbox is the UK's answer to the EU DLT Pilot Regime (see our briefing here).

    These provisions came into force on 29 August 2023.

    Financial promotion

    The Act introduces a gateway through which authorised persons must pass through before they can approve the financial promotions of other firms. This is in response to concerns about the existing regime including concerns that firms were approving financial promotions for products unrelated to their areas of expertise and approving firms were undertaking insufficient due diligence for the product or service being promoted. 

    The FCA has already published a consultation paper on operationalising the gateway (see our briefing here). Under this regime, all new and existing authorised firms will be prohibited from approving the financial promotions of unauthorised persons (to be implemented via a requirement on their permission – the "Financial Promotion Requirement"). To approve financial promotions, firms will need to have the Financial Promotion Requirement removed entirely or partially.

    Critical third parties (CTPs)

    The Act introduces a regime for critical third parties in response to increased concerns raised by policy makers concerning the risks of systemic disruption in the event of a failure of an unregulated third party providing crucial services to a large number of financial services businesses. Among other things the Act contains provisions:

    • granting HM Treasury the power to designate a third party to an authorised person, relevant service provider or FMI entity as a CTP (this will be the case if failure or disruption to the CTP’s services would pose a financial stability or confidence risk to the UK);
    • introducing criteria that HM Treasury must have consider when designating a CTP (e.g. materiality of the services provided to regulated firms in the context of the UK’s financial stability; and the number of regulated firms to which services are provided by the CTP); and
    • giving the FCA, the PRA and the Bank of England a power to make rules over the services that CTPs provide to regulated firms to advance the relevant regulator’s objectives.

    This follows a 2022 policy statement by HM Treasury (see our briefing here) and an August  2022 discussion paper by UK regulators (see our briefing here) on proposed workings of the regime. At the EU level, the Digital Operational Resilience Act recently came into force (see our briefing here).

    Access to cash

    Section 54 and Schedule 6 to the Act set out provisions in relation to maintaining access to cash.  This includes measures requiring HM Treasury to publish a statement of policy concerning cash deposit withdrawal services. This is in response to concerns that despite the increase in the use of digital payments, significant parts of the UK population still rely on cash in their day-to-day lives and measures are needed to maintain access and prevent financial exclusion.

    Under the Act, HM Treasury can designate firms (these are likely to be larger banks and building societies) to be subject to FCA oversight for the purpose of ensuring the continued provision of cash access. FSMA 2023 also gives the BoE powers to oversee wholesale cash industry.

    These provisions came into force on 29 August 2023.


    The Act contains changes that are to be made to UK MiFID while it is in the so-called transition period. This includes: removal of the share trading obligation; aligning the UK derivatives clearing obligation with the UK  derivatives trading obligation; conferring rules onto the FCA to make rules concerning pre-trade transparency waivers concerning derivatives and equity and non-equity instruments; removing the double volume cap; changing the test for the definition of a systematic internaliser from a quantitative test to a qualitative test; and simplifying the positions limits regime. These changes are to set to apply from 29 August 2023.


    The Act puts the BoE decision-making FMI Board on a statutory footing and gives general rule making powers in relation to CCPs and CSDs. This is to replace in time provisions in REUL concerning CCPs and CSDs and to allow the BoE to respond to emerging risks and keep up with international standards. 

    The Act also introduces an expanded resolution regime in respect of CCPs. This provision reflects the consultation outcome to introduce an expanded CCP resolution regime that would give the BoE additional powers and flexibility to mitigate the risk and impact of a CCP failure and risks to financial stability and public funds. Under the provisions, the BoE would be able to take full control of a CCP when necessary and use a number of tools without reliance on the CCP’s rulebook. 

    FSMA 2023 also establishes the concept of a “systemic third country CCP”, enabling the BoE to determine whether an overseas CCP is a systemic third country CCP, in accordance with criteria of general set out in secondary legislation.

    Politically exposed persons (PEPs)

    Section 77 of FSMA 2023 provides for Part 3 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017(SI 2017/692) is to be amended to provide that in the case of a domestic PEP or a family member/known close associate of a domestic PEP, the starting point is that the individual presents a lower level of risk than that of a non-domestic PEP and lesser enhanced customer due diligence measures should be applied than that which would be applied to a non-domestic PEP. The Act also requires the FCA to review its guidance on PEPs and consider whether the guidance remains appropriate.

    These provisions came into force on 29 June 2023.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.


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