Performance of functions relating to financial market infrastructure
The key features of the senior managers and certification regime (SM&CR) introduced by the Act for relevant recognised bodies will be similar to those of the existing SM&CR for banks, insurers and other authorised persons, which is set out in Part 5 of FSMA 2000.
	The existing SM&CR replaced the Approved Persons Regime (APR) between March 2016 and December 2019. The APR, which was introduced in 2001 and was set out in sections 59 to 71 of FSMA 2000, required the pre-approval by a regulator of certain individuals within financial institutions before they could carry out one or more activities. The global financial crisis in 2007-08 and the Libor scandal in 2012 exposed the shortcomings of the APR, and made clear that there was a need for more effective regulation of the conduct of individuals working in the financial services industry.
	This was achieved by amending FSMA 2000 to augment the APR with the SM&CR for certain types of financial institutions. The SM&CR was introduced with the aim of reducing harm to consumers and strengthening market integrity by changing behaviours and culture within firms. The Financial Services (Banking Reform) Act 2013 created two regimes within sections 59 to 71 of FSMA 2000. The new SM&CR would apply to ‘relevant authorised persons’ (i.e., banks, building societies, credit unions and PRA-regulated investment firms), and the APR would continue to apply to all other authorised persons. SM&CR was subsequently extended to all authorised persons. As a result of the amendments to sections 59 to 71 of FSMA 2000, the existing SM&CR can be viewed as an enhanced version of the APR.
	The SM&CR set out in Part 5 of FSMA 2000 has five key elements: the Senior Managers Regime (sections 59 to 63ZE and 71 of FSMA 2000); the Certification Regime (sections 63E and 63F of FSMA 2000); conduct rules for individuals (sections 64A to 64C of FSMA 2000); disciplinary powers (sections 56 to 58, 63A to 63D and 66 to 71 of FSMA 2000); and criminal offences (sections 56(4) and 398 of FSMA 2000).
	Whilst the new regime implemented by the Act will be broadly similar to the SM&CR set out in Part 5, it will sit separately to the existing regime, and will be set out in Part 18 of FSMA 2000.
	In order to implement the regime, the Bank and the FCA would rely on both their general rule-making powers as well as bespoke rule-making powers and duties. This Act introduces a new general rule-making power for the Bank over CCPs and CSDs which will be inserted as section 300F of FSMA 2000 (see section 9), and a new general rule-making power for the FCA over RIEs and data reporting service providers (DRSPs) which will be inserted as section 300H of FSMA 2000 (see section 11). Regulation 3 of The Credit Rating Agencies (Amendment etc.) (EU Exit) Regulations 2019 34 grants the FCA an existing general rule-making power over CRAs.
	The UK’s regulatory regime for CCPs, CSDs and RIEs is outlined in Part 18 of FSMA 2000. Amongst other provisions, Part 18 of FSMA 2000 grants an exemption for the purposes of the general prohibition (which provides that no person may carry on a regulated activity in the UK unless they are authorised or exempt), under which RIEs, CCPs and CSDs that have been recognised by the regulator are able to carry on a regulated activity in the UK without being authorised under FSMA 2000. It also provides for the recognition and supervisory powers of the relevant regulators – the FCA in respect of RIEs and the Bank in respect of CCPs and CSDs. As with other areas of financial services, the regulation and supervision of UK CCPs, CSDs and RIEs has also been heavily influenced by the UK’s membership of the EU. The core EU legislation relating to each of these bodies is set out below.
	The European Market Infrastructure Regulation (EMIR) 35 is the core EU legislation relating to CCPs. It came into effect on 16 August 2012, and lays down rules on OTC derivatives, central counterparties, and trade repositories. Following the end of the Transition Period, the EU Regulation forms part of retained EU law, by operation of the European Union (Withdrawal) Act 2018 (EUWA 2018) and as amended by regulations made under section 8 of EUWA 2018, which ensure that EMIR continues to function appropriately and effectively in the UK. The EU Regulation as amended and forming part of retained EU law is referred to as UK EMIR.
	The Central Securities Depositories Regulation (CSDR) 36 is the core EU legislation relating to CSDs, and it came into effect on 17 September 2014. The aim of CSDR is to harmonise certain aspects of the settlement cycle and settlement discipline and to provide a set of common requirements for CSDs operating securities settlement systems across the EU. Following the end of the Transition Period, the EU Regulation forms part of retained EU law, by operation of EUWA 2018, and as amended by regulations made under section 8 of EUWA 2018, which ensure that CSDR continues to function appropriately and effectively in the UK. The EU Regulation as amended and forming part of retained EU law is referred to as UK CSDR.
	The Markets in Financial Instruments Directive (MiFID II) 37 and the Markets in Financial Instruments Regulation (MiFIR) 38 form the MiFID II framework, which is the core EU legislation relating to RIEs. The MiFID II framework came into effect on 3 January 2018. The framework strengthens investor protection and improves the functioning of financial markets, making them more efficient, resilient and transparent. Following the end of the Transition Period, the MiFID II framework forms part of retained EU law, by operation of EUWA 2018. The EU MiFID II framework was transposed and implemented in the UK by a combination of FCA and PRA Handbook rules, HM Treasury legislation (such as the Markets in Financial Instruments (Amendment) (EU Exit) Regulations 2018), and directly applicable EU regulations, which delivered the necessary amendments to ensure that the framework was implemented and continues to function appropriately and effectively following the end of the Transition Period. MiFID II and MiFIR as amended and forming part of retained EU law are referred to together as the UK MiFID II framework.
	The Credit Rating Agencies Regulation (the EU CRAR) 39 is the core EU legislation relating to CRAs and credit ratings. It was developed to address issues relating to CRAs that became apparent in the financial crisis of 2007/08. The EU CRAR was subsequently amended by Regulation (EU) 513/2011 (OJ L 145/30) (EU CRA II Regulation) and Regulation (EU) 462/2013 (OJ L 146/1) (EU CRA III Regulation). The EU Regulation now forms part of retained EU law, by operation of EUWA 2018. The Credit Rating Agencies (Amendment, etc.) (EU Exit) Regulations 2019 40 delivered the necessary amendments to ensure that the EU Regulation continues to function appropriately and effectively following the end of the Transition Period. The EU Regulation as amended and forming part of retained EU law is referred to as the UK CRAR.
	As set out in the FRF Review consultation, it is proposed that, as a general approach, the direct regulatory requirements that apply to firms in retained EU law be revoked, so that, for the most part, the regulators can determine them in their rulebooks. There are also a number of provisions in retained EU law which do not set direct regulatory requirements on firms. These may be amended and/or retained in domestic legislation. The core EU legislation mentioned above will therefore be revoked, with most firm-facing requirements replaced by regulators’ rules, and other requirements retained and restated in legislation.