Policy paper

2010 to 2015 government policy: financial services regulation

Updated

This is a copy of a document that stated a policy of the 2010 to 2015 Conservative and Liberal Democrat coalition government. The previous URL of this page was https://www.gov.uk/government/policies/improving-regulation-of-the-financial-sector-to-protect-customers-and-the-economy. Current policies can be found at the GOV.UK policies list.

Issue

A responsible and well-regulated financial services sector is essential to the success of the UK’s economy. The financial crisis of 2008 and 2009 demonstrated that when things go wrong in the financial sector, the impact on the economy can be severe.

We are committed to a fundamental overhaul of regulation to make sure that the financial sector manages and contains risks more effectively.

Actions

The Financial Services Act came into force on 1 April 2013. The act makes fundamental changes to the way that financial services firms like banks are regulated by:

  • giving the Bank of England responsibility for oversight of the UK financial system as a whole, by establishing a new Financial Policy Committee within the Bank, with powers to monitor and respond to risks
  • setting up a new regulator of safety and soundness in the financial services sector, the Prudential Regulation Authority, working under the Bank of England, to supervise all firms that manage significant risks as part of their business – banks and other deposit takers, insurance companies, and large investment banks
  • establishing a new business regulator for financial services – the Financial Conduct Authority – which will protect consumers and supervise all firms to ensure that business across financial services and markets is conducted in a way that advances the interests of all users and participants
  • clarifying the government’s responsibilities in a financial crisis by giving the Chancellor of the Exchequer powers to direct the Bank of England where public funds are at risk and there is a serious threat to financial stability

Background

Chancellor George Osborne 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 3 detailed consultations:

To make sure our banking system is more resilient and that customers can bank with confidence, we have published the Banking Reform Bill. The bill is due to come into force in early 2014.

Find out more about how we are creating stronger and safer banks.

Appendix 1: reforming the way financial services are regulated and supervised in the UK

This was a supporting detail page of the main policy document.

The Financial Services Act 2012 came into force on 1 April 2013. The Act made some fundamental changes to the way that financial services firms like banks are regulated.

Financial Policy Committee

We’ve established a new macro-prudential regulator, the Financial Policy Committee (FPC), within the Bank of England. The FPC has powers to ensure emerging risks and vulnerabilities across the financial system as a whole are identified, monitored and effectively addressed.

We published a consultation document in 2012 about the macro-prudential tools that the FPC should be given and have published legislation setting out these tools. These tools give the FPC the power to direct the Prudential Regulation Authority to increase the capital that UK banks are required to hold in certain circumstances.

Prudential Regulation Authority

As of 1 April 2013, we have set up a new regulator, the Prudential Regulatory Authority (PRA), as a part of the Bank of England.

The PRA supervises all firms that manage significant risks as part of their businesses – banks and other deposit takers, insurance companies, and large investment banks.

Financial Conduct Authority

As of 1 April 2013 we set up a new business regulator, the Financial Conduct Authority (FCA). The FCA has more powers to protect consumers, such as the ability to ban products and publish details of misleading advertisements for financial products or services.

New powers for the Chancellor to direct the Bank of England

We’ve clarified the government’s responsibilities in a financial crisis. It gives the Chancellor of the Exchequer powers to direct the Bank of England if public funds are at risk and there is a serious threat to financial stability.