Bank regulation


We have introduced the biggest reforms to the banking sector in a generation: to make banks more resilient to shocks, easier to fix when they get into difficulties, and to reduce the severity of future financial crises.

We want to make sure that when banks make losses, retail customers aren’t excessively affected and taxpayers’ money isn’t used to bail banks out.


The Banking Reform Act received Royal Assent in December 2013. It will bring into law structural and cultural changes to the banking system, by:

  • introducing a ‘ring-fence’ around the deposits of people and small businesses, to separate the high street from the trading floor and protect taxpayers when things go wrong
  • making sure the new Prudential Regulation Authority can hold banks to account for the way they separate their retail and investment activities, giving it powers to enforce the full separation of individual banks
  • imposing higher standards of conduct on the banking industry by introducing a criminal sanction for reckless misconduct that leads to bank failure
  • giving depositors, protected under the Financial Services Compensation Scheme, preference if a bank enters insolvency
  • giving the government power to ensure that banks are more able to absorb losses
  • introducing a cap on payday loans

To make the financial system more responsive to consumers, we are:

  • increasing competition between financial services firms, including making it easier for customers to switch their current accounts with a 7-day current account switching service introduced in September 2013

We are also:


We published a White Paper in 2012, ‘Banking reform: delivering stability and supporting a sustainable economy’ which set out our proposals for reform of the banking sector, based on the Independent Commission on Banking’s recommendations.

The consultation on the white paper closed in September 2012, and we used the responses to help develop the draft Banking Reform Bill ‘Sound banking: delivering reform’. The draft legislation was scrutinised by the Parliamentary Commission on Banking Standards (PCBS) and the government has made a series of amendments to the Bill based on their recommendations.

The government’s response to the PCBS, and the impact assessment, are contained within ‘Banking Reform: a new structure for stability and growth’, published alongside the Bill as introduced into Parliament in February 2013. The Bill is currently going through Parliament.

On 17 July 2013 the government published the consultation document Banking reform: draft secondary legislation, which sets out draft secondary legislation proposed under the Bill. The consultation closed on 9 October 2013 and the government published a summary of responses on 18 December 2013.

Parliamentary Commission on Banking Standards

The Parliamentary Commission on Banking Standards (PCBS), a joint parliamentary committee led by Andrew Tyrie MP was appointed on 17 July 2012, to consider and report on:

  • professional standards and culture of the UK banking sector, taking account of regulatory and competition investigations into the LIBOR rate-setting process
  • lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for government policy
  • to make recommendations for legislative and other action

On 19 June 2013, the Commission, released its fifth and final report, ‘Changing banking for good’. The report focused on individual accountability, corporate governance, competition and long term financial stability.

The government responded to this report on the 8 July 2013 and strongly endorses the Commission’s principal findings and intends to implement its main recommendations.

Independent Commission on Banking

We set up an Independent Commission on Banking in June 2010, chaired by Sir John Vickers. The commission’s role was to review and make recommendations on the structure of the banking system and on how we could reform it to increase competition and maintain financial stability.

The commission published an issues paper in September 2010, an interim report in April 2011 and its final report in September 2011.

In June 2011, the Chancellor announced his support for the commission’s proposals on separating high street banks from investment banks and making sure that investors rather than the public pay to cover investment banks’ losses.

The government responded to the commission’s final report in December 2011.

Financial Services Act

Alongside these reforms, the Financial Services Act, which came into force on 1 April 2013, makes fundamental changes to the way that financial services firms likes banks are regulated. Find out more about how we are improving the regulation of the financial sector to protect consumers and the economy.