Financial Services Act 2010

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Purpose of the Bill

• Strengthen and reform financial regulation, support better corporate governance, and protect and empower consumers.
• Ensure that the financial system that emerges from the crisis is not only rebuilt on a stronger and sounder footing, but is also one that is fairer and works better for consumers.

Main benefits

• More effective regulation and supervision of firms.
• Ensure that greater emphasis is placed on monitoring and managing system-wide risks-including by legislating to create a Council for Financial Stability.
• Making banking remuneration more appropriate and transparent, with a better link between remuneration and effective risk management.
• Ensuring greater support and protection for consumers of financial products.

Main elements

• Establishing a new statutory Council for Financial Stability ('the Council') to replace the Standing Committee, chaired by the Chancellor and comprising the Treasury, Bank of England and the Financial Services Authority.
• Strengthening the Financial Services Authority, including through providing explicit objectives, formalising its international work, and expanding the remit of the Financial Services Compensation Scheme.
• Taking action, nationally and internationally, on remuneration.
• Tougher requirements on systematically important financial firms to set up recovery and resolution plans (ie 'living wills'), that will make banks safer and easier to wind down in the event of future crisis.

Protecting and supporting consumers by:

• Enabling the roll-out of a national money guidance service, to be delivered by a new Consumer Financial Education Body.
• The creation of better routes for consumer redress, including enabling a representative to bring an action through the courts on behalf of a group of consumers, and streamlining the FSA's powers to order a review of past business and secure compensation if there have been legal or regulatory breaches.
• Banning unsolicited credit card cheques, to prevent financial institutions from encouraging customers to borrow more than they can afford.

Dods commentary

The Bill is another step in the government's attempts to promote stability in the financial services industry. The government aims to encourage efficiency and competition whilst discouraging practices which create undue risk and cause the breakdown of Financial Services institutions.

The long-awaited Financial Services Bill has been met with some criticism from both opposition parties and stakeholders.

The Conservative Party has widely rejected plans to strengthen and add to the existing regulatory framework in favour of granting more powers to the Bank of England. The Conservative approach as set out in the document 'Plan for Sound Banking' places emphasises on the belief that the current tripartite system for financial regulation has failed to provide lasting stability.

Shadow chancellor George Osborne said: "We will abolish the failed tripartite system and give the Bank of England responsibility for maintaining financial stability. We will give it responsibility for the prudential regulation of all of our banks, building societies, and other significant financial institutions including insurance companies. Crucially, this will bring together the operation of monetary policy with regulation of the banking system so that the economy is not built on debt."

The Conservative Party has supported efforts detailed within the Bill to control remuneration in the banking sector. The document 'Reconstruction-Our Plan for a Strong Economy' demonstrates the desire to "improve the system for regulating banks by asking the FSA to tackle irresponsible bonus structures. Institutions that use massive bonuses to encourage short-term reckless risk taking will have to hold more capital to offset their higher risks".

The Liberal Democrats have called for a toughening of regulation and passed several motions at their annual conference calling on the government to "introduce a new regulatory regime to address the inadequacies of the current tripartite arrangements on the Treasury, Bank of England and FSA and strengthen the supervision of UK banks with particular regard to liquidity adequacy, systemic risk and robust stress-testing of business models". And "to ensure that there is greater banking stability, using capital requirements as a tool to reflect the state of the economic cycle and therefore deter prevent large fluctuations in lending particularly in the housing market."

Speaking about bankers’ bonuses Vince Cable, Liberal Democrat shadow chanecellor, said: "Liberal Democrats want much more substantial reform including full disclosure of bonuses and bankers' remuneration packages. Anything above £200,000 should be fully disclosed as it already is for directors".

Progress

House of Commons1st reading (no debate): 19 November 2009
2nd reading (no debate): 30 November 2009Committee stage:

• 1st sitting: 8 December 2009 (am)
• 2nd sitting: 8 December 2009 (pm)
• 3rd sitting: 10 December 2009 (am)
• 4th sitting: 10 December 2009 (pm)
• 5th sitting: 15 December 2009 (am)
• 6th sitting: 15 December 2009 (pm)
• 7th sitting: 5 January 2010 (am)
  
• 8th sitting: 5 January 2010 (pm)
• 9th sitting: 7 January 2010 (am)
• 10th sitting: 7 January 2010 (pm)
• 11th sitting: 12 January 2010 (am)
• 12th sitting: 12 January 2010 (pm)
• 13th sitting: 14 January 2010 (am)
• 14th sitting: 14 January 2010 (pm)

Report stage: 25 January 2010
3rd reading: 25 January 2010

House of Lords1st reading: 26 January 2010
2nd reading: 23 February 2010
Committee stage:

• 1st sitting: 10 March 2010
• 2nd sitting: 15 March 2010
• 3rd sitting: 7 April 2010

Report stage: 8 April 2010
3rd reading: 8 April 2010

Ping Pong: 8 April 2010
Royal Assent: 8 April 2010