Recommendation 25

HM Government · verbatim extract Acknowledged

The government notes the committee’s assessment that there is both opportunity and risk that comes with innovation. With respect to stablecoins, the government set out its intention in April 2022 to bring stablecoins, where used as a means of payment, into the UK regulatory perimeter. The government is taking steps to put in place this regulatory structure for stablecoin used for payment through the clauses 21 and 22, and Schedule 6, of the FSM Bill, which create a framework for the regulation of digital settlement assets. Additionally, it is the government’s intention to consult later this year on regulating a wider set of cryptoasset activities, in view of their continued growth and uptake worldwide. The government has already taken action to respond to pressing risks in the sector, including through the introduction of an AML/CTF regime for cryptoasset firms, and has confirmed its intention to legislate to regulate cryptoasset financial promotions. In addition, the government is currently consulting on the adequacy of the regulatory perimeter for payments. 2 This explores in particular the extent to which the Bank of England should be given more responsibility to supervise systemically important firms across the whole payment chain (where today the Bank of England is responsible only for the systemic supervision of payment systems and associated service providers thereto). The government has indicated that the increasing use of digital payments and innovation in payment chains, which have resulted in payments activities no longer being conducted primarily by banks and payment systems, mean it is the government’s view that other firms have the potential to become systemically important firms in payment chains and may warrant Bank of England supervision. The Treasury is also working closely with the Bank of England, via the central bank digital currency (CBDC) Taskforce, to assess the potential opportunities and risks that could arise from a CBDC. The government has committed to issue a public consultation on a potential UK CBDC jointly with the Bank of England during 2022. More widely, there are other steps that the government is taking with respect to protecting consumers through the FSM Bill. This includes provisions to ensure that the UK has a legislative framework to protect access to cash (see section 47 and Schedule 8), which will become a new responsibility of the Financial Conduct Authority. Clause 62 of the FSM Bill will require the Payment Systems Regulator to take action in relation to authorised push payment fraud, in order to provide for more consistent and comprehensive reimbursement to victims of these scams. Clause 20 of the Bill requires authorised firms to be assessed by the FCA before they can approve financial promotions for unauthorised firms. This will reduce the risk of consumer harm that can arise from poor quality financial promotions. I am writing in response to the recent Treasury Select Committee (TSC) report on the future framework for the regulation of financial services, published on 16 June. We strongly support the Committee’s report and agree with its recommendations, and set out below our response to some of the key points made by the Committee. We are keen to continue our engagement with the Committee and stand ready to provide additional evidence on any aspects of the report, as well as the Financial Services and Markets Bill as it is debated in Parliament. Accountability Given the increase in regulators’ responsibilities to set requirements on firms, we support further strengthening our accountability, particularly with respect to Parliament. We therefore welcome the creation of the new sub-committee of the TSC focused on scrutiny of financial services regulations, which should augment the valuable role the Committee already plays in holding regulators to account. To further our accountability, and as noted in the Governor’s letter to the TSC Chair on 27 July, the PRA expects to publish a Discussion Paper (DP) in September setting out our proposed approach to policy-making under the Future Regulatory Framework (FRF). This DP, which touches on many of the issues considered by the Committee in its report, will present our stakeholders with an opportunity to examine our intended approach to policy-making under the new framework. We look forward to sharing this DP with the Committee, and stand ready to discuss it in due course. The PRA agrees with the recommendation made by the Committee that the collective impact of accountability mechanisms proposed by the Treasury should not be excessively burdensome on our resourcing or hinder our agility in responding to risks and opportunities. Additionally, we agree with the Committee’s assessment that the Treasury should use the rule-review power sparingly, given the potential it might otherwise have to weaken regulatory independence. As required by the FRF measure in the Financial Services and Markets (FSM) Bill, we intend to publ