The Financial Services Bill, which will deliver fundamental reform of financial regulation in the UK, received Royal Assent today.
The Bill, which has now become an Act of Parliament, will be known as the Financial Services Act. It sets out a clear and coherent regulatory framework, replacing the uncertainty and inadequacy of the failed Tripartite system.
The Act provides regulators with comprehensive powers to counter future risks to financial stability and to ensure that consumers are treated fairly. It takes important steps to focus the regulators on rebuilding competition in a banking sector that has become too concentrated.
The Act, which comes into force from 1 April 2013:
- gives the Bank of England responsibility for protecting and enhancing financial stability, bringing together macro and micro prudential regulation
- abolishes the Financial Services Authority (FSA) and creates a strengthened regulatory architecture consisting of the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority
- empowers authorities to look beyond ‘tick-box’ compliance and fosters a regulatory culture of judgment, expertise and proactive supervision
The Government will bring forward secondary legislation in the New Year, in advance of the launch of the new authorities legislation that will (among other things) bring LIBOR into regulation.
The Financial Secretary to the Treasury, Greg Clark, said:
I am delighted that the Financial Services Bill has received Royal Assent today.
The Financial Services Act replaces a regulatory structure which palpably failed when tested by crisis. It sets out a comprehensive regulatory framework designed to enhance financial stability in the future and protect consumers. It takes important steps to focus the regulators on rebuilding competition in a banking sector that has become too concentrated.
It is important that the reputation of the UK as a global financial centre is underpinned by a regulatory environment in which the world’s investors, as well as British taxpayers, can have confidence. These reforms - as well as those in the forthcoming Banking Reform Bill - can help rebuild confidence and trust.
Notes for editors
Today’s announcement marks the end of a two and half year process. The Chancellor first laid out the Government’s plans for a new regulatory system in his Mansion House speech in June 2010.
The Financial Services Bill was laid in Parliament following an extensive consultation process. In January 2012, the Government published the draft Bill alongside a White Paper following three detailed consultations:
Pre-legislative scrutiny took place from July to December 2011, and offered a further opportunity for stakeholders and Parliamentarians to engage with and improve the Bill prior to its formal introduction to Parliament.
Following extensive scrutiny in the first half of the year, the Bill had its Third Reading in the House of Commons on 22 May 2012 and was subsequently sent to the House of Lords, with Committee there starting on 26 June and finishing on 24 October. The Bill left the House of Lords on 5 December 2012.
During the scrutiny process the Government amended the Financial Services Bill to:
- bring LIBOR activities within the scope of statutory regulation, including the submission and administration of LIBOR
- create a new criminal offence for misleading statements in relation to benchmarks such as LIBOR, as well as amending the language of existing offences
The Bill became an Act of Parliament on 19 December 2012. It will now be known as the Financial Services Act.
The Act will see the introduction of the new regulatory system from 1 April 2013. Ahead of the launch of the new bodies the Government will bring forward secondary legislation that will (among other things) set out how regulated activities will be divided between the new authorities, bring LIBOR into regulation, and establish the new ‘threshold conditions’ that firms must satisfy to become and remain authorised as a financial services firm.
The Financial Services Act will bring about the creation of:
- The Financial Policy Committee (FPC)
- The Prudential Regulation Authority (PRA)
- The Financial Conduct Authority (FCA)
The FPC will be a strong and expert macro-prudential authority within the Bank of England, responsible for protecting and enhancing financial stability. It will start work on 1 April 2013.
The PRA a new micro-prudential regulator with responsibility for ensuring effective prudential regulation of firms which manage complex risks on their balance sheets. It will be established as a subsidiary of the Bank and take on its new responsibilities from 1 April 2013.
The Financial Conduct Authority
The creation of the FCA will mark a major change in the regulation of consumer finance in the UK. It will ensure that business across financial services and markets is conducted in a way that advances the interests of all consumers and market participants.
The FCA will have a single strategic objective and three operational objectives. These are supported by a competition duty.
The strategic objective is ensuring that the relevant markets function well (formerly’ protecting and enhancing confidence’). The operational objectives are:
- securing an appropriate degree of protection for consumers
- protecting and enhancing the integrity of the UK financial system
- promoting effective competition in the interests of consumers (formerly ‘promoting efficiency and choice’)
The competition duty states that the FCA must, so far as is compatible with the consumer protection and the integrity objective, discharge its general functions in a way which promotes effective competition in the interests of consumers.
The Act will facilitate the transfer of consumer credit regulation from the Office of Fair Trading to the FCA , which will deliver a comprehensive improvement in consumer protection when compared to the OFT’s current suite of powers. The FCA will take on responsibility for consumer credit regulation from 1 April 2014.
To support the FCA in its more proactive, interventionist approach, the Government is giving it a new product intervention power in the Act, which enables the regulator to act quickly to ban or impose restrictions on financial products.
To complement and underline the principles of transparency and openness enshrined in the new regulatory framework, the FCA will also have new powers of disclosure to publish details of warning notices issued in relation to disciplinary action and a new power to take formal action against misleading financial promotions and disclose the fact it has done so.