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New UK Financial Services Act

Just noticed that the governors are dropping half of the new Financial Services Bill, in order to rush it through Parliament before the general election is called on May 6th. 

The Financial Services Act, formerly known as the Financial Services Bill, is about to be passed into Law and includes:

  • New powers for consumers to collectively challenge banks in court in addition to a new consumer financial education body and a free nationwide money guidance service (dropped)
  • A requirement for firms to develop ‘living wills’ to help them better understand the risks involved in their businesses and deal with periods of stress, and to ensure they can be wound down in future crises without excessive taxpayer support
  • Tougher rules on pay and bonuses that will ensure remuneration policies do not contribute to excessive risk taking
  • Strengthening of the regulatory framework, including the creation of the Council for Financial Stability and enhanced powers for the Financial Services Authority

Key features of the Act

Stronger financial regulation and corporate governance

A new Council for Financial Stability, chaired by the Chancellor and including the Chair of the Financial Services Authority (FSA) and the Governor of the Bank of England, to focus on managing systemic risk and protecting financial stability, both in the UK and internationally (dropped)

A new, explicit financial stability objective for the FSA, enabling it to place greater emphasis on monitoring, assessing and mitigating macroprudential risks in its supervisory and regulatory approach.

Enhanced powers for the FSA:

  • Rule-making powers may be used by the FSA for any of its objectives (not just consumer protection as at present);
  • Information-gathering powers extended to non-regulated firms (including hedge funds), where information is relevant to financial stability;
  • Strengthened powers to take action where firms and individuals are guilty of misconduct;
  • Ability to place restrictions on short selling and to require disclosure of short selling.

Legislative provisions on pay that follow Sir David Walker’s review of corporate governance (to be published 26 November 2009) and the G20 agreement on remuneration, including:

A duty for the FSA to make binding rules which implement the G20 pay agreement following further detail from the FSB in Spring next year;

FSA powers to void any individual contract that contravenes specified rules, and to make provision for the recovery of payments made under that contract contrary to those rules;

An end to multi-year guaranteed bonuses, or large bonuses paid out as a cash lump sum at year-end, and all bonuses subject to clawback;

A new FSA duty to require firms to produce Recovery and Resolution Plans (RRPs) or living wills. RRPs will ensure institutions have robust recovery plans to deal with periods of stress without recourse to support from taxpayers. By removing barriers to effective resolution of failed firms, RRPs will help protect against system-wide risks and reduce the need to draw on taxpayers’ funds to ensure financial stability in the future.

Greater protection and support for consumers

New measures to enable consumers to collectively seek redress and compensation where there has been widespread detriment, including:

  • Allowing a representative to bring an action through the courts on behalf of a group of consumers;
  • Streamlining the FSA’s powers to order a review of past business and to secure compensation if there have been legal or regulatory breaches. (dropped)

A ban on unsolicited credit card cheques, preventing financial institutions from encouraging customers to borrow more than they can afford.

A new independent consumer financial education body will be established by the FSA, to increase financial education and awareness among consumers. The new body will roll out a national Money Guidance service from 2010 (currently being joint-piloted by the FSA and the Treasury) that will deliver accessible, impartial financial guidance. (dropped)

New authority for the Financial Services Compensation Scheme (FSCS) to act as an agent to deliver compensation to UK customers of financial firms based overseas, improving depositor protection.

The Financial Services Act will enact proposals set out in the ‘Reforming Financial Markets’ paper published by the Government in July. The following documents have also been published today alongside the Act:

Public responses to the ‘Reforming Financial Markets’ consultation paper

HM Treasury response to the consultation

HM Treasury response to the Treasury Select Committee Report ‘Banking Crisis: Regulation and Supervision’

Impact Assessment for the Financial Services Act.

If you're interested in more, I just received this great assessment from Dechert LLP (
Download Dechert's "An Overview of the Financial Services Act 2010, 11 page pdf)

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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