Brexit, LIBOR and financial crime update: What does the new Financial Services Bill mean for UK market participants

On 21 October 2020, The UK government announced the Financial Services Bill created to ensure that the UK financial services sector is still positioned at the forefront of the global market post BREXIT. The bill has a strong focus on the regulatory standards and framework for the UK financial services market once it leaves the EU. Its key aim is to create more competition for UK businesses and consumers whilst still being a key player in global markets [1].

Many players within the UK financial services market have been questioning the regulatory framework post BREXIT and how they should better prepare their companies for trading with international players.

So, what will the new measures mean for your business and how will impact the way you conduct business outdoes the UK?

The main objective of the Bill will be to enhance the UK’s standards and its attractiveness as a location for business, both of which will be crucial to help the UK economy bounce back.

  • It maintains the fact the UK’s regulatory framework will remain world-class and promote financial stability for the enabling the implementation of the remaining Basel III standards and a new prudential regime for investment firms and giving the Financial Conduct Authority the powers it needs to oversee an orderly transition away from the LIBOR benchmark.
  • Simplifying the investment fund market process to try am to promote more openness between the UK and international markets.
  • measures to improve the functioning of the Packaged Retail and Insurance-based Investment Products Regulation and increase penalties for market abuse.
  • There would also be an extension of 3 the transition period for the UK to stop using some third-country financial benchmarks from 2022 to 2025 to allow the country more time to find a replacement.

Will this be the final legislation?

It will need to go through a process of review from the House of Commons and the House of Lords. Once both houses have agreed this will be passed on to receive a Royal Assent after which it will become law.

What potential impacts could this have on your KYC and AML systems?

As the final bill has not been passed it could be subject to change. This could mean that improved KYC and AML systems would need to be implemented by all UK market players, to ensure that new standards are adhered to. The UK holds

What does this mean for your LIBOR transition?

There is still uncertainty over tough legacy contracts and more clarity needs to be defined in terms of what sort of contracts will fall within the Article 23C exception[2]. The definition of what can be deemed as a tough legacy contract is unclear and will leave market participants unclear on how to transition such contacts. This however should not stop firms from transitioning their legacy books away from LIBOR indexed ones. Firms will now remain heavily dependent on FCA guidance on contacts, especially those who will need additional review.

If you would like to discuss these new changes and how they will impact your LIBOR transition or your AML and KYC processes, please contact a member of our team.

 

 

 

Works Cited:

[1] “Finance Bill 2020-21.” GOV.UK, 21 Oct. 2020, www.gov.uk/government/collections/finance-bill-2020-21. Accessed 2 Nov. 2020.

[2] “UK Financial Services Bill: Amendments to the Benchmarks Regulation to Support LIBOR Transition.” JD Supra, 30 Oct. 2020, www.jdsupra.com/legalnews/uk-financial-services-bill-amendments-96417/.