On 19 December 2011 the House of Lords and House of Commons Joint Committee on the draft Financial Services Bill (the Bill) published its report and recommendations (the Report) on the Bill. The press release that accompanied the Report is here.
The Bill, which remains in first draft, will implement a new structure of financial regulation in the UK. We discussed the Bill and its accompanying White Paper in this post in June 2011, and looked in more detail at the powers of the proposed Financial Conduct Authority (the body that will be of most interest to Corporate lawyers) in this post.
The Report contains a series of recommendations for changes to the Bill as currently drafted and to the powers, objectives and responsibilities of the three financial regulatory bodies that the Bill will establish – the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority. Those recommendations are set out at Chapter 6 of the Report, at pages 85 to 96.
Centrality of the Bank of England in the new structure
The Report draws attention to the “unprecedented new powers” that the Bill will give to the Bank of England:
“The Bank will now have substantial powers to manage the British economy not only through monetary policy but also by directly influencing risk-taking in financial markets and influencing the supply of credit. It will have access to measures impinging directly on households and businesses. This raises important issues of democratic accountability to Parliament.”
The headline recommendation of the Report is that in light of these powers, HM Treasury and Parliament should be able to exercise more oversight over the Bank, the Financial Policy Committee and the Prudential Regulation Authority, and that the Bank of England should have a new governance structure.
The Financial Conduct Authority
The principal recommendations of the Report with regard to the Financial Conduct Authority are as follows:
“In recent years there have been several cases of mass mis-selling of financial products, such as Payment Protection Insurance. The draft Bill establishes a new conduct of business regulator: the Financial Conduct Authority (FCA). The FCA’s obligation in the Bill to promote confidence in the UK financial system could encourage it to conceal or ignore weaknesses that might disturb confidence. The FCA’s objective should be to focus on promoting fair, efficient and transparent financial services markets that work well for users. The FCA should be given significant new competition powers including the power to make market investigation references to the Competition Commission and the power to hear super-complaints. Responsibility for consumer credit should be moved from the OFT to the FCA.
To complement the principle of ‘caveat emptor’ enshrined in the draft Bill a statutory duty should be placed on firms to treat their customers “honestly, fairly and professionally”, and the FCA should ensure that companies address conflicts of interest and provide intelligible information, rather than accurate but impenetrable information that leaves customers confused. Customers have a right to know if a warning notice has been issued about a firm’s product or process so the requirement for the FCA to consult before disclosing the fact should be removed from the draft Bill. We also make recommendations to ensure bank customers are made aware when, because their bank is headquartered elsewhere in the EEA, their deposits are not covered by the Financial Services Compensation Scheme.”
The new system of financial regulation is expected to be in place by the end of 2012 or in early 2013.
Friendly Corporate PSL
To subscribe for our free weekly update e-mail, click here.