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Financial Services and Markets Act 2023: Your essential guide

The Financial Services and Markets Act 2023 (FSMA23) was passed into law on 29 June 2023. FSMA23 sets out a blueprint for post-Brexit UK financial services regulation. It aims to consolidate the UK’s position as a competitive, innovative and pragmatic place for financial firms to do business.

FSMA23 is a long and complex piece of legislation with a raft of schedules. It introduces high-level structural changes to the regulatory system, alongside tightening specific requirements across several topical areas. These changes are significant for both wholesale and retail UK financial services businesses.

Harper James’ financial services solicitors can support you in understanding all the varied elements of FSMA23 and what it could mean for your business.

Why is FSMA23 so important?

FSMA23 is significant because it refreshes the overarching framework for financial regulation in the UK. It’s considered to be the most comprehensive overhaul of UK financial regulation since the creation of the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) back in 2013.

Re-shaping of the regulatory landscape under FSMA23 includes:

  • Future regulatory framework: FSMA23 establishes powers to facilitate an extensive, medium-term programme to replace European Union (EU)-derived financial services rules with tailored, UK-specific versions. This exercise will be done in stages and involve careful coordination between the financial regulators and H M Treasury to ensure that there is no gap between EU law being phased out and new UK rules being brought in.

    There will also be a shift towards including more rules in the FCA Handbook, PRA Rulebook and Bank of England rules, rather than imposing requirements through legislation. To reflect the more influential role of the regulators in shaping the UK financial regime going forward, FSMA23 contains additional safeguards around the accountability of the regulators and how they engage with financial businesses.
  • Designated activities regime (DAR): The DAR is a new UK regulatory regime for financial activities which were previously covered by EU regulations. The DAR is based on the existing FSMA regulatory model but falls short of bringing DAR activities within the full regulatory regime for UK ‘regulated activities’. Financial operations initially covered by the DAR will include short-selling and certain activities involving derivatives, securities and securitisation.

    The DAR has, however, wider relevance for financial services businesses. This is because, in the future, DAR will offer an alternative route for H M Treasury to introduce ‘lighter touch’ regulatory requirements for new activities without necessarily designating new ‘regulated activities’. For more information about the FSMA regime and regulated activities, please see our Knowledge hub article on ‘What you need to know about the Financial Services and Markets Act 2000’.
  • Critical third parties (CTPs): FSMA23 extends the powers of the financial regulators to allow them to oversee (to a limited extent) the activities of certain ‘critical’ or systemic non-regulated businesses on which large numbers of financial services firms rely, such as IT and cloud service providers. This is aimed at ensuring that the UK financial system remains resilient and robust and is not exposed to excessive risk from unregulated sectors.
  • Digital settlement assets (DSAs): FSMA23 introduces the concept of DSAs and gives H M Treasury powers to bring DSAs under financial regulation as needed. This future-proofs the UK regulatory regime for innovations in the digital asset space, potentially laying the groundwork for stricter future regulation of cryptoassets and stable coins.

What other key changes does FSMA23 introduce?

As well as outlining structural changes, FSMA23 also brings in important enhancements to existing regulatory rules.

  • Guidance for regulators: FSMA23 gives the FCA and the PRA a new secondary competition objective which requires them to consider the UK’s international competitiveness and sustainable UK economic growth when carrying out their work. New regulatory principles around net zero transition and environmental targets to which the regulators should ‘have regard’ are also introduced.
  • Access to cash and automated push payment (APP) fraud: Under FSMA23, the FCA will be subject to a new duty to seek to ensure that UK current account customers continue to benefit from free access to cash, both for withdrawal and making cash deposits. The Payment Systems Regulator also receives new powers to require payment service providers to compensate customers who fall victim to APP fraud (scams where banking customers are duped into transferring money electronically to fraudsters).
  • Bank accounts for politically exposed persons (PEPs): FSMA23 requires the FCA to put in train a review into whether the required money-laundering checks before a person with political connections can open a UK bank account are working as intended. This follows high-profile cases of UK MPs struggling to access banking facilities. Alongside this, on 20 July 2023, in response to concerns raised following Nigel Farage’s dispute with Coutts, the government also announced that it will use powers under FSMA2023 to introduce new safeguards for customers who believe their bank accounts are being closed unfairly.
  • Other key changes: FSMA23 also brings in reform to other key areas of UK financial services. There are revisions to the UK regulatory regime for financial market infrastructure (FMI) providers. This regime allows the Bank of England and FCA to make rules for FMI firms, establishes the basis for an FMI digital Sandbox (or regulatory testing ground) and extends the existing accountability regime to senior staff in FMI and credit rating agency firms.

    FSMA23 also includes changes which will allow financial services mutual recognition arrangements (MRAs) to be put in place through secondary legislation to facilitate and accelerate new cross-border trade agreements.  New processes for insurance company insolvency and for central counterparties which get into difficulty are also introduced. Finally, FSMA23 is the vehicle for implementing many of the capital market reforms coming out of the government’s Wholesale Markets Review consultation.

When do changes in FSMA23 take effect?

Changes in FSMA23 are being ‘commenced’, or brought into effect, in stages.

Some changes came into effect immediately on 29 June 2023 when FSMA23 became law. These include the financial promotions gateway, the CTP regime and the facilitation of MRAs. A second tranche of changes are due to take effect from 29 August 2023. This second stage includes the new regime for DSAs, provisions around access to cash and the secondary competition objectives for the FCA and PRA.

The start date for the remaining items in FSMA23 are left for H M Treasury to commence by way of legislative order. The first of a series of commencement orders has now been published. The order lists several pieces of retained EU law which will be replaced with UK-specific variants by 1 January 2024.


FSMA23 is a far-reaching piece of legislation which aims to re-position the UK at the forefront of financial services in a post-Brexit world. It will have immediate effect through new regulatory requirements for key UK financial services business activities. However, its full impact may only emerge over time as the UK financial services regime diverges from the constraints of a harmonised EU regime and seeks to re-shape itself for the future.

Harper James’ financial solicitors are well-placed to explain and interpret FSMA23 changes as this journey develops. They can provide timely and targeted advice on the implications of FSMA23 for your financial services business. If you’d like to know more about any aspect of FSMA23, please do not hesitate to reach out to our experienced team.

About our expert

John Pauley

John Pauley

Financial Services Partner
John is a specialist solicitor with extensive expertise in financial services regulation. He advises financial institutions, services providers, and merchants on regulated activities including payments, e-money, consumer credit, data protection, anti-money laundering, and gambling operations.

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