A strong financial services industry is built on stable and sound foundations. It is the central objective of financial services policymakers across the globe and here in the UK. A resilient banking sector is of critical economic importance.
Lessons must be learned from the financial crisis. The Government believes that deep-rooted reform will benefit both consumers and industry – providing the regulatory framework needed for the UK to enjoy a more resilient financial services industry that is fair to customers and serves the wider economy. Lending needs to recover in a way that is responsible and sustainable, to support a strong economy.
The main elements of the banking agenda are:
- Creating a new UK supervisory framework – UK regulation of financial services will be overhauled. The Financial Services Authority will be abolished and its prudential supervisory powers transferred to the Bank of England. The Bank will be given control of wider ‘macro’ prudential regulation through the creation of a Financial Policy Committee. It will also be given oversight of day-to-day ‘micro’ prudential regulation through the creation of a new Prudential Regulation Authority;
- Establishing a focused conduct of business regulator, the Financial Conduct Authority (FCA) which will have, as its core purpose, protecting and enhancing consumers’ confidence in financial services. The FCA will be less prepared to see consumer detriment occur, taking a more proactive, interventionist approach to retail conduct regulation. The Government intends to legislate to give the FCA the appropriate regulatory tools to support this new approach - including a new product intervention power;
Increased capital & liquidity requirements – Work is being undertaken at an international level to strengthen the amount, quality and consistency of capital held by banks; to improve banks’ liquidity; and strengthen the resilience of financial institutions for times of financial and economic weakness. This is a central part of wider crisis management work being examined within the EU and internationally by the G20 and Financial Stability Board;
- Increasing competition and lending – The Government has established the Independent Commission on Banking to examine competition within the banking sector. In addition, the Government has gone beyond working with banks to improve levels of lending to businesses by announcing a series of measures in its June Budget 2010 to boost business lending. The response to the Government’s July 2010 Green Paper on supporting a private sector recovery has also helped develop UK policy in this area; and
- Increasing international co-ordination and supervision – It is imperative that reform of financial services is taken at the international level to prevent there being any risk of ‘regulatory arbitrage’. This is where the relative weaknesses of different regulatory frameworks are played off against one another. Greater co-ordination and oversight is also needed internationally to respond more effectively to economic or financial risks to the global economy. Recognition of this led to the important development of a new European System of Financial Supervisors as part of the new structure for EU supervision of financial services.
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