MacRoberts Banking Law e-update 13/07/10

REGULATORY AND BANKING REFORM

The Chancellor of the Exchequer, George Osborne, recently announced extensive reforms to the way financial institutions will be regulated in the UK.

Prudential Regulation Authority ("PRA")
Supervisors from the FSA will move to a new PRA, which will be a subsidiary of the Bank of England. The PRA will regulate financial firms including banks, investment banks, building societies and insurance companies. Hector Sants, the current chief executive of the FSA, will stay on to oversee the transition and Mervyn King, the Governor of the Bank of England, will chair the board.

Financial Policy Committee ("FPC")
An independent FPC will be established at the Bank to look at issues that may threaten economic and financial stability and take action in response. The FPC will also be chaired by Mervyn King and will include the chair of the new CPMA, as well as external members and a Treasury representative.

Consumer Protection and Markets Authority ("CPMA")
The FSA will be abolished and replaced by a CPMA, which will regulate the conduct of every authorised financial firm providing services to consumers and be responsible for conduct of business regulation of both retail and wholesale financial services.

White collar crime agency
The Chancellor confirmed that the Government will fulfil the commitment in the coalition agreement to create a single agency to tackle serious economic crime. This is likely to replace the functions of the Serious Fraud Office, the FSA, the Office of Fair Trading, the Fraud Prosecution Service, and the Crown Prosecution Service Revenue and Customs Division.

Timetable for reform
The aim is for the new regime to be operational by the end of 2012 and there have been indications that the Government intends to pass necessary legislation within two years.

Restructuring the banks
The newly appointed Independent Commission on Banking will review the current banking system with a view to introducing reforms to promote stability and competition. The Commission will consider whether to force banks to split their retail and investment banking arms. The Commission will publish its final report by the end of September 2011.

Bank levy
The Chancellor announced in the Budget on 22 June 2010 that the Government will introduce a bank levy from 1 January 2011. The levy is intended to encourage banks to move to less risky funding profiles. The levy will apply to:

• the consolidated balance sheet of UK banking groups and building societies;
• the aggregated subsidiary and branch balance sheets of foreign banks and banking groups operating in the UK; and
• the balance sheets of UK banks in non-banking groups.

The Government will consult on its proposals over the summer with final details of the levy to be published later this year.

For further information, please contact Frances Sim on 0131 229 5046 or Johanne Watson on 0141 303 1100.

© MacRoberts 2010

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