UK: Budget 2010 - financial regulation and governance

The Chancellor delivered his annual budget today and in his speech expressed support for an international systemic tax on banks. Elsewhere in the budget report there is more of interest to note. Chapter 3 of the report - titled "Reforming financial services" - mentions several company law and governance matters, many of which are likely to remain if there is a change of Government later this year. To quote directly from the report (para. 3.24-3.25 and 3.65):

Sir David Walker was commissioned by the Government in 2009 to review governance practices in the financial services sector. The Government, in collaboration with other bodies with a governance remit, will implement Sir David’s recommendations throughout 2010. Consequently, the FSA is consulting on changes to its ‘significant influence controlled functions’ regime. The Financial Reporting Council (FRC) is consulting on revisions to the Corporate Governance Code, and separately on the adoption and coverage of a Stewardship Code for investors. As part of the development of the Stewardship Code on which the FRC is currently consulting, the Government will also consider whether the existing institutional investor voting disclosure regime should become mandatory as provided for in section 1277 of the Companies Act 2006.

On 10 March 2010 the Government published draft Regulations to require enhanced disclosure of remuneration in the financial services sector. After the Financial Services Bill gains Royal Assent, the Government will formally consult on those Regulations. As part of that process, and given the key role that owners should play in managing remuneration contracts, the Government will consult on whether further practical measures can be identified to facilitate the consent, by owners, of executive remuneration in the financial services sector.

The Government proposed in the 2009 Pre-Budget Report the introduction of a specific governance code for building societies and other financial mutuals. It also announced that it would consider the introduction of a regular independent review of financial mutuals’ adherence to the code. HM Treasury has commissioned a working group to take this work forward and to make recommendations to Ministers. The objectives are to ensure that an appropriate code is there for those that need it; the Walker recommendations are appropriately reflected in guidance for mutuals; there is independent input into this process; the governance and ownership characteristics of the mutual model are fully reflected in governance guidance; and the guidance provides a useful resource in promoting good governance among financial mutuals. The Government will update on the group’s work in the Pre-Budget Report".