Financial Services and Markets Act: No.6 Regulations
On May 9, 2024, the Financial Services and Markets Act 2023 (Commencement No.6) Regulations 2024 were issued, marking significant changes to financial legislation. These regulations revoke specific laws, streamline directives, and enhance regulatory clarity.
A significant milestone in the continuing development of financial regulation will be reached on May 9, 2024, when the Financial Services and Markets Act 2023 (Commencement No.6) Regulations 2024 are published. This significant occasion highlights the regulatory agencies' hard work in putting the Financial Services and Markets Act 2023 (FSMA 2023), a comprehensive framework intended to improve the integrity and stability of the financial markets, into practice.
These rules, which make up the sixth set of FSMA 2023 commencement regulations, demonstrate a determined effort to create a strong regulatory framework that protects investors, encourages market efficiency, and guarantees the stability of financial institutions. This introduction lays the groundwork for a thorough examination of the major modifications made by the Regulations and their effects on the financial services landscape.
Source
[1]
Simon Lovegrove (UK)
[2]
Alessandro Micagni
Financial Services and Markets Act 2023 (Commencement No.6) Regulations 2024
The release of the Financial Services and Markets Act 2023 (Commencement No.6) Regulations 2024 on May 9, 2024, marked a noteworthy advancement. These regulations, which are the sixth set of commencement regulations released under this legislation, represent a significant step in the Financial Services and Markets Act 2023 (FSMA 2023) implementation process.
These regulations introduce several key changes:
- Revocation of Assimilated legislation: As mentioned in Schedule 1 to the FSMA 2023, Section 1 of the FSMA 2023 starts the process of revocation of assimilated legislation. According to the regulations, this revocation will take effect on December 31, 2024. The instruments being revoked are detailed in rules 2(b) through (d) and the Schedule to these rules. These include EU tertiary legislation made under the Solvency II Directive, as described in Regulation 2(c), and certain subordinate laws mentioned in Regulation 2(b).
- EU Tertiary Legislation: The Solvency II Directive's Regulation 2(c) and the Schedule that is attached list the precise instruments that are under the purview of EU tertiary legislation. The fact that these instruments are included in Part 3 of Schedule 1 to FSMA 2023 facilitates their revocation and permits a smooth transition in the financial services regulatory environment.
- Regulations pertaining to Insurance and Reinsurance Undertakings: Firstly, Regulation 2(d) lists the Insurance and Reinsurance Undertakings (Prudential Requirements) (Risk Margin) Regulations 2023. Section 3 of FSMA 2023 establishes these regulations, which are also covered by other EU-derived laws included in Part 5 of Schedule 1 to FSMA 2023.
All things considered, these rules represent a methodical and purposeful approach to financial services industry regulatory change, which is in line with the goals outlined in the FSMA 2023.
Regulatory Authority: Commencement No. 6 Regulations 2024
In accordance with section 86(3) of the Financial Services and Markets Act 2023, the text describes the authority granted to the Treasury to enact the Financial Services and Markets Act 2023 (Commencement No. 6) Regulations 2024. These restrictions will be cited as such, and they shall be enforced throughout England and Wales, Scotland, and Northern Ireland.
With effect from December 31, 2024, the primary goal of these regulations is to revoke assimilation laws pertaining to financial services and markets. Section 1(1) of the Financial Services and Markets Act 2023, which deals with the revocation of assimilated law pertaining to financial services and markets—specifically, the instruments specified in paragraphs (b) through (d) and the schedule that goes with them—begins to take effect as a result.
The regulations specifically outline the removal of several of the clauses mentioned in Schedule 1 of the Financial Services and Markets Act of 2023. This includes the revocation of the instruments listed in Part 3 (EU tertiary legislation, etc.) and Part 5 (other EU-derived legislation) of Schedule 1, including the Insurance and Reinsurance Undertakings (Prudential Requirements) (Risk Margin) Regulations 2023. It also includes the repeal of the Solvency 2 Regulations (S.I. 2015/575) and the Solvency 2 and Insurance (Amendment, etc.) (EU Exit) Regulations 2019 (S.I. 2019/407) under Part 2 of Schedule 1.
To put it briefly, these regulations are a major step in updating and streamlining the legislative framework that oversees financial services and markets in compliance with the Financial Services and Markets Act 2023.
EU Regulations Supplementing Directive 2009/138/EC on Insurance and Reinsurance (Solvency II)
In order to enhance Directive 2009/138/EC, also referred to as Solvency II, the European Commission has adopted a number of Commission Delegated and Implementing Regulations, which are listed in the language that is provided. The approval of internal models, procedures for supervisory approval of special purpose vehicles, use of undertaking-specific parameters, approval for the use of ancillary own-fund items, treatment of exposures to regional and local governments, capital add-on decision-making procedures, assessment of external credit assessments, adjustment of standard equity capital charge, and calculation of capital requirements for currency risk are just a few of the topics covered by these regulations pertaining to the insurance and reinsurance business. In order to guarantee the successful implementation and enforcement of Solvency II throughout the member states of the European Union, these laws serve to offer comprehensive technical standards and processes.
EU Regulations: Technical Standards and Reporting Requirements under Directive 2009/138/EC (Solvency II)
Under Directive 2009/138/EC, also referred to as Solvency II, a number of Commission Implementing and Delegated Regulations that the European Commission has enacted are essential in establishing technical standards and reporting guidelines. These laws, which cover the period from 2015 to 2017, give insurance and reinsurance companies comprehensive instructions for adhering to legal requirements and guaranteeing the stability of their financial operations:
- Templates for Information Submission: On December 2, 2015, the Commission Implementing Regulation (EU) 2015/2450 was published, which streamlines the reporting procedures required by Directive 2009/138/EC by establishing technical standards for information submission to supervisory agencies.
- Solvency and Financial Condition Report: To improve transparency and accountability in financial reporting within the insurance and reinsurance sector, Commission Implementing Regulation (EU) 2015/2452, also dated December 2, 2015, lays down technical standards governing the procedures, formats, and templates for the solvency and financial condition report.
- Estimation of Technical Provisions and Basic Own Funds: A number of Commission Implementing Regulations, such as EU 2016/165, EU 2016/869, EU 2016/1376, EU 2016/1976, and EU 2017/309, offer technical data and recommendations for estimating technical provisions and basic own funds for reporting needs. This guarantees precision and uniformity in financial reporting throughout reporting cycles.
- Transitional Measures for the Equity Risk Sub-Module: On September 9, 2016, the Commission Implementing Regulation (EU) 2016/1630 was published. It sets forth technical standards for the application of transitional measures pertaining to the equity risk sub-module, with the goal of promoting compliance with regulations and a seamless transition.
- Correction of German Language Version: To ensure linguistic accuracy and consistency in regulatory documents relevant to Solvency II, Commission Delegated Regulation (EU) 2016/2283, issued August 22, 2016, corrects the German language version of Delegated Regulation (EU) 2015/35.
Together, these rules support financial stability, risk management, and regulatory compliance in the insurance and reinsurance sectors throughout the European Union, aiding in the successful implementation of the Solvency II directives.
Reporting Requirements under Directive 2009/138/EC (Solvency II)
The linguistic versions of Delegated Regulation (EU) 2015/35 have been corrected by Commission Delegated Regulation (EU) 2017/669, issued December 16, 2016, to ensure correctness and consistency in regulatory texts that supplement Directive 2009/138/EC on Insurance and Reinsurance (Solvency II).
Furthermore, from 2017 to 2020, a number of Commission Implementing Regulations were established, which set forth technical information for the computation of technical provisions and basic own funds for reporting purposes under Directive 2009/138/EC. These Regulations include EU 2017/812, EU 2017/1421, EU 2017/1542, EU 2017/2015, EU 2018/165, EU 2018/730, EU 2018/1078, EU 2019/228, EU 2019/699, EU 2019/1285, EU 2019/1902, EU 2020/193, EU 2020/641, EU 2020/1145, and EU 2020/1647.
In order to maintain industry financial stability and guarantee compliance with Solvency II directives, these laws offer crucial recommendations for insurance and reinsurance companies. Delegated Regulation (EU) 2015/35 is also amended by Commission Delegated Regulation (EU) 2018/1221 and Commission Delegated Regulation (EU) 2020/442, which improve regulatory efficacy and clarity by streamlining capital requirements and fixing prior iterations.
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