The act confirms the Bank of England’s status at the centre of the UK’s economic and financial systems.
The Bank of England and Financial Services Act 2016 will mean the Bank of England is better equipped to fulfil its vital role of overseeing monetary policy and financial stability for the whole of the UK. It began its passage through Parliament in October and forms a key part in the government’s long term plan to build a resilient economy.
The act is the third major piece of legislation that the government has taken through Parliament to fundamentally reform the financial sector. The Financial Services Act 2012 dismantled the failed tripartite system, putting the Bank of England at the centre of a new framework of financial regulation.
The Banking Reform Act 2013 implemented the recommendations of the Independent Commission on Banking and the Parliamentary Commission on Banking Standards, to put in place strict new rules on bank ring-fencing, implement bail-in, and make sweeping changes to enhance individual accountability and raise standards in banking.
The Bank of England and Financial Services Act 2016 is the last major milestone in this far reaching series of reforms. It includes the following measures:
- strengthening the governance and accountability of the Bank, by ending the subsidiary status of the Prudential Regulation Authority and allowing the National Audit Office to undertake value for money reviews of the Bank for the first time. These important new reforms will mean that the Bank of England continues to be an international example of best practice
- taking further steps to protect tax payers from firm failure, by updating resolution planning and crisis management arrangements between the Bank and Treasury
- ensuring that senior managers across the financial services industry can be held to account for failings that occur on their watch, through the extension of the Senior Managers and Certification regime to all authorised persons
The act also makes further important reforms to help consumers by:
- extending the scope of the Pension Wise service, so that pensioners who, from April 2017, are able to sell their annuity income can access free, impartial guidance
- giving the Treasury new powers to help tackle illegal money lending
- taking further steps to promote diversity and competition in the banking sector, by ensuring that regulators take into account different business models as part of their competition objectives
The Economic Secretary to the Treasury, Harriett Baldwin said:
Ensuring the Bank of England is well positioned to fulfil its vital role of overseeing monetary policy and financial stability is a key part of the government’s economic plan.
The government has completely overhauled the regulatory system, and has put the Bank of England back at the heart of financial stability. The Bank of England Act 2016 builds on the changes we have made since 2010, and makes sure the Bank is on the best possible footing to oversee its expanded remit.
Governor of the Bank of England, Mark Carney said:
By placing the Bank’s three major policy committees on the same statutory footing, by streamlining the Monetary Policy Committee’s (MPC) meeting schedule, and by further enhancing the transparency and governance of the Bank’s operations, this legislation will ensure the institution can operate more effectively as One Bank to promote the good of the people of the United Kingdom by maintaining monetary and financial stability.
The Bank of England and Financial Services Act 2016 will:
- improve the accountability and governance of the Bank of England by making its Court of Directors a smaller, more focused unitary board
- implement the recommendations of the Warsh Review by moving the Monetary Policy Committee (MPC) to a schedule of a minimum of 8 meetings a year
- complete the Governor’s ‘One Bank’ reforms by bringing the Prudential Regulation Authority within the Bank, ending its status as a subsidiary, and establishing a new Prudential Regulation Committee (PRC)
- make changes to the Financial Policy Committee (FPC) including making it a statutory committee of the Bank, in line with the MPC and the new PRC
- place the new Deputy Governor for Banking and Markets in legislation, adding the position to the Court of Directors and the FPC
- bring the Bank within the purview of National Audit Office value for money studies, improving transparency and accountability for its use of resources
- further strengthen coordination arrangements between the Treasury and the Bank in protecting taxpayers and the wider economy from bank failures
- promotes diversity in the banking sector by putting consideration of mutuality and other types of business organisation into both regulators’ guiding principles
- extend the Senior Managers and Certification Regime to all financial services firms, and implement a fairer system by introducing a ‘duty of responsibility’ for senior managers in all authorised firms, superseding the ‘reverse burden of proof’ that would have applied in the banking sector
- ensures consumers with a higher value annuity receive appropriate financial advice before making the decision to sell their annuity income stream
- gives the Treasury a new power to provide financial assistance to illegal money lending teams tasked with tackling loan sharks
- supports the government’s aims to have a robust and proportionate anti-money laundering and counter-terrorist financing regime, with resources focused on higher-risk areas and individuals in line with accepted practice
- makes technical changes to the Scottish and Northern Irish Banknote issuance regime to facilitate group restructuring (such as restructuring undertaken to implement ring-fencing)