The Financial Services (Banking Reform) Act received Royal Assent on 18 December 2013 and plays a key part in the Government’s plan to create a banking system that helps to encourage growth in the economy, support consumers and increase lending to small businesses.
Recommendations of both the Independent Commission on Banking and those of the Parliamentary Commission on Banking Standards have been implemented through this legislation. These bodies were established to consider a structural reform of the banking sector and to review professional standards within the industry.
Such reforms demonstrate the largest ever change in Britain’s banking system, and are the result of almost three years of consultation on the future of the UK’s financial sector. Key changes include:
- providing the Bank of England with new powers to identify risks within the system, and provide the Bank of England with the ability to tackle such issues as they arise;
- introducing rules that separate high street branches from the trade floors in the City, so as to protect taxpayers from reckless behaviour;
- the introduction of a criminal sanction for misconduct resulting in bank failure, coupled with a more rigorous approval system for senior bankers; and
- greater choice for consumers, for example providing customers with the ability to switch bank accounts within a 7-day period, which in turn should generate more competition within the banking sector.
Sajid Javid, Financial Secretary to the Treasury, stated that this legislation will "help to deliver much needed competition in the banking sector and increase the conduct standards amongst bankers."
Sir John Vickers, Chair of the Independent Commission on Banking, stated that as the key recommendations of the Independent Commission on Banking are now in place, the UK is at the "forefront of banking reform". He added that "the international reform effort still has further to go – to ensure that banks have deeper capacity to absorb losses and to build safer structures for banks in the rest of Europe".
The question of whether the enactment of this Bill has had the desired structural and cultural impact on the UK banking industry will require further scrutiny later in 2014, as evidence of this will take time to surface.