On 19 November, the Government introduced the Financial Services Bill to Parliament. The Bill delivers significant reforms which aim to provide stronger financial regulation and greater rights and information for consumers. Explanatory notes on the Bill are also available, together with an impact assessment and some FAQs. The Government is confident that the Bill will complete its Parliamentary scrutiny before the end of the current Session.
Our briefing summarises the main provisions of the Bill, and contains some initial commentary¹. Other briefings dealing in more detail with specific aspects of the Bill, particularly remuneration and collective proceedings, will also be available shortly.
Media attention has focussed mainly on the provisions which would prohibit (and override contractual rights to) bonus arrangements which do not comply with the Financial Services Authority (FSA)'s remuneration code, those used to require any authorised firm to prepare living wills (recovery and resolution plans), and proposals for collective proceedings in respect of financial services claims.
The measures which will, however, involve more substantial costs to the regulated community are the establishment of the consumer finance education body and Money Guidance service, the new consumer redress mechanisms, and the transfer of the costs of funding the exercise of the special resolution regime powers to Financial Services Compensation Scheme levy payers.
The Bill also gives the FSA new objectives, duties and a range of new powers, in terms of rule-making, supervision and enforcement. In some cases the effect of these will extend beyond the regulated community.
List of key changes
- A new consumer financial education body, subsidised by the regulated community, to raise public understanding of financial matters
- Collective proceedings for financial services claims
- Additional powers for the FSA to require consumer redress
- A restriction on unsolicited credit card cheques
- A new Council for Financial Stability responsible for reviewing matters affecting the financial stability of the UK financial system
- A new financial stability objective for the FSA
- A new FSA duty to promote international regulation and supervision
- A new FSA power to require information relevant to financial stability both in the UK, and to support overseas regulators
Enhanced FSA powers
- Enabling the FSA's rule-making, permission varying and intervention powers in support of any of the FSA's regulatory objectives
- New rule-making powers for the FSA in respect of
- Recovery and Resolution Plans
- Short Selling
- Consumer Redress Schemes
- New FSA enforcement powers
- to restrict or suspend the carrying on of regulated activities for up to 12 months
- to restrict or suspend approved persons for up to 2 years
- to impose fines and withdraw an authorisation
- to penalise any person who performs a controlled function without approval
- extending the period for taking action for misconduct by approved persons from 2 to 4 years
Enhanced Treasury powers
- Empowering the Treasury to require the preparation, approval and disclosure of remuneration reports in respect of prescribed "executives" of authorised persons
- Empowering the Treasury to make regulations about collective proceedings
- Empowering the Treasury to require information/documents it reasonably requires from participants or proposed participants in the asset protection scheme or related schemes
- Empowering the Treasury to make orders placing providers of services which form part of recognised inter-bank payment systems under the oversight of the Bank of England
Extending the Financial Services Compensation Scheme
- Empowering the Treasury to require contribution by the FSCS to the costs of the special resolution scheme
- Enabling the FSCS to make payments on behalf of other compensation schemes or arrangements in respect of financial services institutions (including institutions that are not authorised firms under FSMA)
- Empowering FSA to make rules, including rules which empower the FSCS manager to impose levies to cover its expenses under this clause
Banking Act 2009
- An amendment to the Banking Act 2009 to enable to property transfer powers to be used to create liabilities