Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023

Lord Sharkey Excerpts

Tuesday 2nd May 2023 Grand Committee

[Lord Sharkey (LD)]

My Lords, we support both of these instruments, with some reservations and a few questions.

I will speak first to the commodity derivatives and emission allowances order. As the Minister said, it proposes a very sensible reduction to regulatory burdens. I note that the procedure followed in this case was a kind of super-affirmative, as prescribed in Schedule 8 to the European Union (Withdrawal) Act 2018. The instrument was published in draft to enable recommendations to be made by a committee of either House; no such recommendations were made but some questions nevertheless arise.

Perhaps the key question is when we will see the FCA’s new replacement regime, mentioned in paragraph 7.8 of the Explanatory Memorandum. Paragraph 10.2 of the EM notes that respondents to the consultation

“did not want to return to a wholly qualitative definition of ‘ancillary trading’”

and

“were in favour of the FCA developing a simplified method to determine when an activity is ancillary”—

one that would give them the legal certainty that qualitative definitions would not. I think this means that, until January 2025, when the SI comes into force, the current rules continue to apply. If that is the case, and if the current regulatory burden is so obviously unnecessary, why do we have to wait so long for the new regime?

The EM also notes:

“HMT is committed … to ensuring that the FCA has the right powers to set any transitional provisions that may be necessary to deal with the situation in which a firm’s trading activity can no longer be regarded as ancillary”.


I take this to mean that the FCA does not currently have these powers. If that is the case, perhaps the Minister can say why the usual transitional powers article was not included in this SI.

I now turn to the financial promotion SI. I agree that that it is vital both to increase consumers’ understanding of the risks associated with crypto assets and to ensure that the promotion of these assets is subject to the same standard of regulation as is the case for broader financial services; I welcome the proposed order. I am glad to see that the proposed implementation period has been reduced from six months to four months but I wonder whether this is still too long and invites an avalanche of unregulated promotion in those four months. Can the Minister explain why the four-month period was chosen and say what consideration was given to a shorter period? I would also be grateful for more explanation of the exemption mentioned in paragraph 6.4 of the EM— specifically why it is necessary and how long it will last—and for an assurance that it does not create any unhelpful loopholes.