UK: financial regulation reform - Financial Services Bill introduced in Parliament

The Financial Services Bill was introduced in Parliament last Thursday and received its First Reading. Second Reading, which will provide MPs with their first opportunity to debate the main principles of the Bill, is scheduled for today. The Bill's progress can be followed here. A copy of the Bill as introduced is available here (html) and here (pdf). Explanatory notes are available here (html) and here (pdf).

The Government has also published another White Paper - A new approach to financial regulation: securing stability, protecting consumers, available here (pdf) - which builds on earlier White Papers and sets out its response to some of the recommendations made by the Treasury Select Committee and Pre-Legislative Scrutiny Committee in respect of an earlier draft of the Bill. Revised objectives have, for example, been provided for the Financial Conduct Authority (FCA); an explicit "duty to supervise" will be given to the Prudential Regulation Authority (PRA); and the Chancellor will be given a limited statutory power of direction over the Bank of England where a notification of risk to public funds has been made by the Bank's Governor and there is a serious threat to financial stability.

The White Paper also explains some new policy decisions including, for example, a much greater role for the FCA with regard to consumer credit. The Government also appears to have rejected calls for the creation of a Supervisory Board for the Bank of England, preferring instead the Bank's proposal for an Oversight Committee. Further consultation is promised in respect of the suggestion that the Threshold Conditions for authorisation should be reviewed and also with regard to the manner in which these Conditions are divided between the FCA and PRA. Further consultation is also to take place with regard to the macro-prudential tools available to the Financial Policy Committee (FPC). The Paper also explains that the Government will be consulting later this year in respect of a couple of issues identified by the Financial Services Authority in its report into the failure of Royal Bank of Scotland: should regulatory pre-approval be required for all significant merger and acquisition activity in the banking sector and are changes necessary to the liability regime for senior management and directors?

One of the recommendations made by the Scrutiny Committee was for the publication, alongside the Bill, of relevant secondary legislation including the Order under which the scope of the PRA's prudential supervision role would be defined. This has been done: a draft of the Financial Services and Markets Act 2000 (PRA-Regulated Activities) Order has been published (see here, pdf) along with further draft secondary legislation and draft memoranda of understanding (including a memorandum setting out the framework for coordination of financial crisis management between the Treasury, Bank of England and the PRA: see here.

Update (30 January 2012): Hansard, when recording the Bill's First Reading, also states that Second Reading was scheduled for today. This is a mistake. According to the Parliamentary Calendar, Second Reading has been timetabled for 6 February 2012.