The Financial Services Act

The commencement of the Financial Services Act 2012 on 1 April 2013 will implement the Government’s commitment to strengthen the financial regulatory structure in the UK. The legislation delivers significant reform of the current regulatory system, which divides responsibility for financial stability between the Treasury, the Bank of England and the Financial Services Authority (FSA).

A new approach to financial regulation

The new system gives the Bank of England macro-prudential responsibility for oversight of the financial system and, through a new, operationally independent subsidiary, for day-to-day prudential supervision of financial services firms managing significant balance-sheet risk. The FSA will cease to exist in its current form. A proactive new conduct of business regulator (the Financial Conduct Authority) will also be created to protect consumers, promote competition and ensure integrity in markets.

The legislation implements these reforms by:

establishing a macro-prudential authority, the Financial Policy Committee (FPC) within the Bank of England, to monitor and respond to systemic risks;
clarifying responsibilities between the Treasury and the Bank of England in the event of 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;
transferring responsibility for significant prudential regulation to a focused new regulator, the Prudential Regulation Authority (PRA) established as a subsidiary of the Bank of England; and
creating a focused new conduct of business regulator – the Financial Conduct Authority (FCA) – which will 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.

Our graphic illustrates the new regulatory system. (Flickr opens in a new window)

Press notice and policy document

The Government has also published a number of draft statutory instruments which have been made under the Act before cut over to the new regime on 1 April 2013.

Financial Services - supplementary documents

Memoranda of Understanding

HM Treasury is required, under the Financial Services Act 2012 to establish two Memoranda of Understanding (MoU) with the new financial regulatory authorities.

MoU between HM Treasury and the Bank, including the PRA, re: Financial Crisis Management

The Financial Crisis Management MoU sets out responsibilities of each regulatory authority and the Treasury in a financial crisis. It has a particular focus on monitoring and managing potential risks to public funds.

MoU Crisis Management (PDF 352KB)

MoU between HM Treasury, the Bank, including the PRA, and the Financial Conduct Authority (FCA) re: International Organisations

The International Organisations MoU sets out how the UK authorities will co-ordinate their senior-level engagement with EU and international committees and organisations. The principles in the MoU should also apply to relationships between the parties to the MOU and other UK authorities/bodies. The MoU establishes an International Co-ordination Committee chaired by HM Treasury; this committee is accountable to the Chancellor.

MoU International Organisations (PDF 285KB)

Consumer credit

The Financial Services Act 2012 also enables the transfer of Consumer Credit regulation to the FCA. Further information can be found in the consultation section of our website.

Consultation: A new approach to financial regulation: consultation on reforming the consumer credit regime

Secondary legislation

A new approach to financial regulation: draft secondary legislation

The Government has published A new approach to financial regulation: draft secondary legislation, a consultation on the key secondary legislation related to the Bill.

A new approach to financial regulation: draft secondary legislation

The Financial Policy Committee’s macro-prudential tools

The Government has published The Financial Services Bill: the Financial Policy Committee’s macro-prudential tools, a consultation on its proposals for the Financial Policy Committee’s (FPC) direction-making tools. This follows the publication of the interim Financial Policy Committee's own recommendations for macro-prudential powers.

Government’s response to the Wheatley Review of LIBOR

The Government amended the Financial Services Bill during its passage through Parliament, in order to implement the recommendations of the Wheatley Review of LIBOR.

The Government also published a consultation document in November 2012 on secondary legislation necessary to implement key recommendations, for example with regard to bringing LIBOR within the scope of regulation.

Following these consultations, the Government has published secondary legislation which will be made under the Act before cut over to the new regime. Subject to the Parliamentary timetable, the Government intends that the new regime will be in place on 1 April 2013.

Wheatley Review of LIBOR

A summary of responses to these consultations and the Government response to them is available here:

Financial Services Act 2012: summary of consultation responses on draft secondary legislation and Government response (PDF 253KB)

The secondary legislation itself and the associated explanatory memoranda can be found here.

Special resolution regime powers over investment firms, clearing houses and group companies

Extending the special resolution regime (PDF 34KB)

Remit and recommendations for the Financial Policy Committee

The Financial Services Act 2012, which came into effect on 1 April 2013, requires the Government to provide the Financial Policy Committee (FPC) with a written remit and recommendations at least once a year. The Chancellor of the Exchequer has written to the Governor of the Bank of England to provide the FPC with its first remit.