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MacRoberts Banking Law e-update 08/01/09

BANKING LAW REFORM

Prompted by the recently tempestuous financial markets, the much anticipated Banking Bill was introduced into Parliament on 7 October 2008. It is expected to receive Royal Assent by 20 February 2009, when the existing temporary legislation – the Banking (Special Provisions) Act - will expire. The measures are to be the first permanent statutory regime dealing with struggling financial institutions.

The new legislation aims to make it easier for the Treasury, the Bank of England and the Financial Services Authority (FSA) to intervene when a bank (or building society) is in difficulty. It also seeks to make the financial system safer by strengthening the Financial Services Compensation Scheme (FSCS).

The centrepiece of the Bill is the introduction of a 'Special Resolution Regime' (SRR), enabling the FSA to seize the assets of a struggling bank and secure depositors savings. The SSR would give the option to transfer assets to a private sector purchaser, to a bridge bank, or to temporary public sector ownership. The Bank of England is to be in charge of administering the SRR with the FSA responsible for triggering the regime and retaining a supervisory role thereafter.

The Bill also:

  • Formalises the Bank of England's role in maintaining the UK's financial stability;
  • Amends the FSCS framework set out in the Financial Services and Markets Act in order to facilitate faster pay out;
  • Addresses the manner in which the Bank of England is able to lend, including allowing short-term non-disclosure of liquidity assistance;
  • Enables the FSA to collect information from toiling banks and removes any impediments to sharing this with the Bank of England or the Treasury;
  • Strengthens the arrangements underpinning banknote insurance by commercial banks in Scotland and Northern Ireland.

Although there have been critics of the Bill, many view it as a step in the right direction, at the very least giving the authorities extended tools by which to deal with individual banks.

For more information please contact Norman Martin or Frances Sim on 0131 229 5046

© MacRoberts 2009