Some key legislative proposals for financial services firms to monitor

With economic growth as the central focus of the legislative programme announced in the King’s Speech and briefing notes, there are some proposed bills that could be ones to watch for financial services firms although the detail is yet to come. These include:

• Digital Information and Smart Data Bill: This Bill will contain a number of different proposals relating to data. These include providing a statutory footing to new and innovative uses of data for example, in respect of Digital Verification Services (which enable digital identity products to be used in different contexts), and Smart Data services (which, like Open Banking, allow the sharing of customer data with third parties at the customer’s request). The briefing notes explain that Open Banking - being the only active example of a regime comparable to a 'Smart Data scheme' - needs a legislative framework to put it on a permanent footing to allow it to ‘grow and expand’.

Who is this relevant to? Potentially of interest to all financial services firms. Building the world's first Smart Data economy is one of the three priority areas for the new government that were identified by Innovate Finance (the industry body representing the UK’s global fintech community) in its recently published ‘FinTech Plan for Government’. Developments in digital verification services would also be relevant in the context of fraud prevention.

• Draft Audit Reform and Corporate Governance Bill: This Bill will impact regulations which apply to the auditing of companies’ accounts. A new regulator, the Audit, Reporting and Governance Authority, will replace the Financial Reporting Council and it will have new powers to tackle bad financial reporting and help restore trust in financial statements. Directors of companies (including financial services firms) should be aware that the new powers will include powers to investigate and sanction company directors for serious failures in relation to their financial reporting and audit responsibilities. If enacted, these would apply in addition to existing directors’ duties and the responsibilities which apply under the Senior Managers and Certification Regime.

Who is this relevant to? Potentially of interest to all financial services firms.

• Cyber Security and Resilience Bill: This Bill will aim to strengthen the UK’s cyber defences. Current proposals include expanding the scope of regulation and increasing incident reporting requirements. The Bill will also provide greater powers to regulators to proactively investigate potential vulnerabilities and will give them access to cost recovery mechanisms to obtain further resources.

Who is this relevant to? Potentially of interest to all financial services firms.

• Pensions Schemes Bill: This Bill will aim to improve outcomes for those with pension schemes. The proposals include enabling automatic consolidation of people’s deferred pension pots to maximise value for pension holders and benefit pension schemes, ensuring that all pension schemes meet a standardised test to confirm that they deliver Value for Money,  and requiring pension providers to also offer retirement products and retirement solutions to members. There are also other proposals such as: consolidating the defined benefit market into Superfunds, and reaffirming The Pension Ombudsman’s (TPO) powers so that it is not necessary to apply to courts to enforce a TPO decision.

Who is this relevant to? Pension scheme trustees and financial services firms operating within the pensions space, including those selling investment products offered with a pensions wrapper.

• Bank Resolution (Recapitalisation) Bill: This Bill will aim to enhance the UK’s bank resolution regime, particularly in relation to small banks. It will enable the Bank of England to use funds from the banking sector to cover certain costs associated with resolving a failing bank and achieving its sale. This will be achieved by: requiring the Financial Services Compensation Scheme (FSCS) to provide funds to the Bank of England, allowing the FSCS to recover these funds by imposing levies on the banking sector, and enabling the Bank of England to require a bank in resolution to issue new shares.

Who is this relevant to? Firms in the banking sector, including those who may be subject to FSCS levies. At present, the plan is that the levies will not apply to credit unions.

Relationship with the EU

In addition to the above specific legislative proposals, the King’s Speech also referred to UK/EU relations, stating that the new government ‘will seek to reset the relationship with European partners and work to improve the United Kingdom’s trade and investment relationship with the European Union.’ However, it is not clear what impact this ‘reset’ might have on the post-Brexit financial services regulatory landscape.

ESG

Although none of the legislative proposals in the ESG space relate specifically to financial services firms, ESG and sustainability is a recurrent theme in the King’s Speech. 

Proposals include the creation of a National Wealth Fund, which aims to provide capital for transformative investments, and which aims at attracting investment at a 3:1 ratio between the private and public sector. 

Similar arrangements are also proposed for Great British Energy, which will (amongst other things) aim to facilitate the use of clean energy, the reduction of fossil fuel use and the promotion of energy efficiency.  These will create new opportunities for green investment. 

The Sustainable Aviation Fuel (Revenue Support Mechanism) Bill will provide also potential new investment opportunities in new SAF plants across the UK – supported by a revenue certainty mechanism for SAF producers, which should help them attract outside investment.

The Planning and Infrastructure Bill includes provisions to speed up planning applications for critical infrastructure including accelerating upgrades to the national grid and boosting renewable energy and using development to fund nature recovery where both are stalled: “We will only act in legislation where we can confirm to Parliament that the steps we are taking will deliver positive environmental outcomes. Where we can demonstrate this, the Bill will deliver any necessary changes.”

Artificial Intelligence (AI)

Although it had been reported that an AI Bill was expected to be one of the proposed measures, the King’s Speech did not include such a proposal.  There were only a few references to AI in relation to specific legislative proposals, and these were in relation to strengthening safety networks and product safety.  There was, however, a general statement that the government will “seek to establish the appropriate legislation to place requirements on those working to develop the most powerful artificial intelligence models”.  The proposals that were being trailed ahead of the King’s Speech may appear in a subsequent Parliamentary session.