Schedule 6: Digital settlement assets Part 1 – Amendments to the Banking Act 2009
Schedule 6 extends the application of the existing scope of Part 5 of the Banking Act 2009 to include payment systems using digital settlement assets and digital settlement asset service providers. Therefore, consequential amendments are made to accommodate the differences between systems using digital settlement assets and more traditional payments systems (those which are currently regulated). This necessitates the inclusion of new sections covering those who are service providers connected to a digital settlement asset payment system. For example-
Paragraph 4(4) of the Schedule introduces a definition of "digital settlement assets" as a new section 182(4A) of the Banking Act 2009, which includes a right to or interest in a digital settlement asset.
Paragraph 4(5) of the Schedule adds a new section 182(5A) of the Banking Act 2009, intended to capture firms that provide one or more services in relation to a payment system chain. These could be those that safeguard, or safeguard and administer (such as wallets), stablecoin creators or issuers, exchange providers. Those who set rules are defined as "digital settlement asset service providers". This reflects the way in which stablecoin functions can be distributed across multiple entities. The same paragraph adds a new section 182(5B) which defines what "digital settlement asset exchange providers" are.
Paragraph 4(5) adds a new section 182(5C) of the Banking Act 2009 allowing HM Treasury to amend the definitions in the new sections 182(4A) and 182(5A), via affirmative procedure, as necessary for HM Treasury to remain agile and responsive to market developments and safeguard against risks for consumer protection and financial stability purposes. Without such futureproofing, there is the risk of current definitions quickly becoming outdated and the measure would not capture entities intended for regulation.
	Paragraph 9 adds a new section 184A of the Banking Act 2009 enabling HM Treasury to issue recognition orders in respect of payments systems using digital settlement assets as is currently the case for traditional payment systems as well as a new section 185A at paragraph 10 which sets out the recognition criteria for such digital settlement assets service providers mirroring sections 184 and 185 for the power and criteria to make designation orders for traditional payment systems. Paragraph 17(b) adds a new section 190A which allows the Bank to direct systemic digital settlement assets to establish service provider rules mirroring its powers under section 190 as it can direct so for system rules.
	Paragraph 20 adds a new section 192A where the Bank may give direction to the FCA to refrain from certain action with respect to recognised digital settlement asset payment systems and recognised digital settlement asset service providers. This seeks to address the situation where an existing firm regulated by the FCA under either the EMR 2011 and the PSR 2017 is recognised as systemic – such that it is also regulated by the Bank in relation to financial stability risks under Part 5 of the Banking Act 2009.
	Paragraph 32(b) inserts a new section 203C which requires that the Bank issue a policy statement with respect to its overall policy approach with regard to its oversight of recognised digital settlement asset payment systems and recognised digital settlement asset service providers under Part 5 of the Banking Act 2009. This will ensure the means and mechanics of the new regime are sufficiently communicated to those operating within the market through a coordinated approach between the regulators, in this case the FCA who the Bank is required to consult with.
	Paragraph 37 amends section 206A to insert new subsections 206A(2A), 206(2B) and 206(3A) which confer powers on HM Treasury to make order(s) applying any sections under Part 5 of the Banking Act 2009 to those service providers who provide services to DSA service providers. This is intended to capture other service providers in relation to recognised DSA service providers or those who may themselves potentially become systemic but could not be recognised as systemic by HMT for systemic regulation in their own right.
	Paragraph 38 inserts a new section 206AA to acknowledge the difference between the normal payments chain and the digital settlement asset payments chain. In doing so, it seeks to capture service providers connected with a recognised payment system using digital settlement assets.