UK: An Overview of the Financial Services Act 2010

Last Updated: 25 May 2010
Article by Martin Day

The Financial Services Bill ("the FS Bill") was introduced into Parliament in November 2009 and had its second reading on 30 November 2009. It was then committed to a Public Bill Committee, which sat on 8, 10 and 15 December 2009, and on 5, 7, 12 and 14 January 2010. The Report and third reading stages took place on 25 January 2010. The FS Bill received its first and second readings in the House of Lords on 26 January 2010 and 23 February 2010 respectively, and the House of Lords Committee stage commenced on 10 March 2010. The Report and third reading stages took place on 8 April 2010 and the amendments made by the House of Lords were accepted by the House of Commons on the same day. The FS Bill received Royal Assent at the parliamentary prorogation ceremony on 8 April 2010, following the Government's removal of some of the Bill's more controversial provisions to ensure its survival in the "wash-up" process, the scramble to pass ongoing legislation which takes place in the interval between the announcement of the General Election date and the dissolution of Parliament.

The Bill makes a number of significant changes to the current regulatory regime. Media attention has focused mainly on the provisions which would prohibit (and override contractual rights to) bonus arrangements which do not comply with the FSA's remuneration code and require authorised firms to prepare "living wills" (recovery and resolution plans).

The measures, which will involve more substantial costs to the regulated community, are the establishment of the consumer finance education body and money guidance service, the new consumer redress mechanisms, and the transfer of the costs of funding the exercise of the special resolution regime powers to Financial Services Compensation Scheme levy payers.

The Bill also gave the FSA new objectives, duties and a range of new powers, in terms of rule-making, supervision and enforcement. In some cases the effect of these will extend beyond the regulated community.

In this update, Dechert's Martin Day provides an overview of the FS Bill now enacted as The Financial Services Act 2010.


The FS Bill was originally announced in the Queen's Speech on 18 November 2009.

However, the Government first disclosed its intention to introduce the FS Bill in July 2009, in its paper entitled "Building Britain's Future". This stated: "Through the future [FS Bill] the Government will toughen the regulation of the financial system, ensuring that the FSA has sufficient powers to do its job and improve efficiency and competition".

The Government then set out its detailed proposals for reform in its White Paper on financial services regulatory reform and its White Paper on consumer reform both published in July 2009.

The FS Bill will deliver significant reforms which are designed to:

  • strengthen financial regulation, including improving prudential regulation and supervision;
  • improve corporate governance and remuneration practices; and
  • give consumers greater rights and information.

The FS Bill also gives the FSA new objectives and duties and extends its powers in various ways, mainly through amendments to the Financial Services and Markets Act 2000 ("FSMA").

(The Treasury also published an impact assessment and explanatory notes on the Bill. The explanatory notes are designed to be read in conjunction with the FS Bill, but do not give any comprehensive description of it. The Treasury has also published Frequently Asked Questions on the Bill.)

Further Background

In October 2008, the Chancellor of the Exchequer asked Lord Turner (Chairman of the FSA) to review the causes of the global financial crisis and make recommendations (at a UK and an international level) for reforming regulation and supervision to ensure the future stability of the global banking system.

In March 2009, Lord Turner and the FSA published:

  • the "Turner Review", a report which set out the findings of his review of the causes of the global financial crisis and made recommendations for reform of regulation and supervision of the banking system; and
  • FSA Discussion Paper 09/2 in which the FSA outlined in more detail its proposals to reform banking regulation and supervision.

Then in July 2009, the Treasury published its own White Paper on reforming financial markets, which also represented the Government's formal response to the Turner Review and DP09/2. In addition, it set out the Government's own analysis of the causes of the financial crisis and the actions which it had taken to date to restore financial stability and consumer confidence. The White Paper, also proposed reforms to financial regulation to enable more effective prudential regulation and supervision of firms, greater emphasis on monitoring and managing system-wide risks, and improved protection and support for consumers. It also set out the Government's proposals for new primary legislation which it indicated would be brought forward in the next legislative session.

On 19 November 2009, the Government then published a document summarising the responses it had received on its White Paper and set out its plans for taking forward the proposals. The FS Bill progresses a number of these proposals.

The FS Bill also builds on a number of other reforms implemented by the Government over the past year in the wake of the financial crisis. These include, in particular, the Banking Act 2009 which established a new permanent special resolution regime that gave the authorities a range of tools to deal with failing banks and building societies, and Sir David Walker's review of corporate governance of UK banks and other financial industry entities.

A list of key changes

Consumer Protection

  • A new consumer financial education body, subsidised by the regulated community, to raise public understanding of financial matters
  • Additional powers for the FSA to require consumer redress
  • A restriction on unsolicited credit card cheques

Financial Stability

  • A new financial stability objective for the FSA
  • A new FSA power to require information relevant to financial stability both in the UK, and to support overseas regulators

Enhanced FSA Powers

  • Enabling the FSA's rule-making, permission varying and intervention powers in support of any of the FSA's regulatory objectives
  • New rule-making powers for the FSA in respect of:
    • Remuneration
    • Recovery and Resolution Plans
    • Short Selling
    • Consumer Redress Schemes
    • New FSA Enforcement Powers:
    • to restrict or suspend the carrying on of regulated activities for up to twelve months
    • to restrict or suspend approved persons for up to two years
    • to impose fines and withdraw an authorisation
    • to penalise any person who performs a controlled function without approval
    • extending the period for taking action for misconduct by approved persons from two to four years

Enhanced Treasury Powers

  • Empowering HM Treasury to require the preparation, approval and disclosure of remuneration reports in respect of prescribed "executives" of authorised persons
  • Empowering HM Treasury to require information/documents it reasonably requires from participants or proposed participants in the asset protection scheme or related schemes
  • Empowering HM Treasury to make orders placing providers of services which form part of recognised inter-bank payment systems under the oversight of the Bank of England

Extending the Financial Services Compensation Scheme

  • Empowering HM Treasury to require contribution by the FSCS to the costs of the special resolution scheme
  • Enabling the FSCS to make payments on behalf of other compensation schemes or arrangements in respect of financial services institutions (including institutions that are not authorised firms under FSMA)
  • Empowering the FSA to make rules, including rules which empower the FSCS manager to impose levies to cover its expenses under the preceding power

Banking Act 2009

  • Amending the Banking Act 2009 to enable property transfer powers to be used to create liabilities

Key Provisions in the FS Bill

Objectives of the FSA – the new financial stability objective

Under FSMA, the FSA currently has four regulatory objectives. These are: maintaining confidence in the financial system; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers, and reducing financial crime.

The FS Bill gives the FSA a new financial stability objective to contribute to the protection and enhancement of the stability of the UK financial system. In considering this objective, the FSA must have regard to:

  • the economic and fiscal consequences for the UK of instability of the UK financial system;
  • the effects (if any) on the growth of the UK economy of any regulatory action taken to meet the financial stability objective; and
  • the impact (if any) on the stability of the UK financial system of events or circumstances outside the UK (as well as in the UK).

In consultation with the Treasury, the FSA must determine and review its strategy in relation to the financial stability objective.

The FS Bill also gives the FSA a broad power to require certain persons to provide specified information or produce specified documents in the context of its new financial stability objective. The types of person to whom this requirement applies include:

  • a person who has a legal or beneficial interest in any of the assets of a relevant investment fund;
  • a person who is responsible for the management of a relevant investment fund;
  • a person who provides any service to an authorised firm (only if the FSA considers that the service or any failure to provide the service poses, or would be likely to pose, a serious threat to the stability of the financial system);
  • a person prescribed by order made by the Treasury; and
  • a person who is connected with the above persons.

A "relevant investment fund" is defined for these purposes as an investment fund whose assets consist of or include financial instruments which are traded in the UK or were issued by a body incorporated in the UK.

The FSA will also be able to exercise the power to require information at the request of an overseas regulator in order to support the stability of the financial system operating in the country or territory of that regulator.

The new consumer financial education body

The FS Bill removes the FSA's regulatory objective of promoting public understanding of the financial system. Instead, the FSA will establish a new consumer financial education body ("the CFEB") the role of which will be to raise the understanding and knowledge of members of the public of financial matters (including the financial system) and improve their ability to manage their financial affairs.

More detail on the establishment and operation of the CFEB is set out in Schedule 1 to the Bill. This sets out the FSA's responsibilities, including appointing the board, approving the CFEB's annual budget and annual plan. The FSA will also be able to provide services (such as HR or IT support) to the CFEB, and staff may also be transferred to the new body.

The CFEB will produce an annual plan and an annual report. The CFEB will take over responsibility for the work the FSA has been undertaking as part of the National Strategy for Financial Capability and will implement the Thoresen Review's recommendations for an impartial generic financial advice or 'money guidance' service.

The establishment of the CFEB and the rollout of money guidance are by far and away the most costly aspects of the proposals in the FS Bill and the justification is clearly that prevention is better than cure. The FSA will be entitled to collect sums from FSA regulated firms towards the CFEB's establishment and running costs, and the OFT will also be able to levy Consumer Credit Act licence holders and applicants for such licences to the same end. Some funding (possibly up to 50 per cent) may also be provided through directions issued under the Dormant Bank and Building Society Accounts Act 2008.

The case for making the financial services industry pay for the money guidance service, which, according to the impact assessment released with the FS Bill, delivers at least as much information about budgeting, tax credits and social security credit, and taxation, as about financial services, needs to be more fully developed. The forecasted benefits for the industry are a reduction in the costs of default and of service, and in the numbers of complaints, reputational benefits and a hoped for increase in the propensity to purchase financial products.

Meeting the FSA's regulatory objectives

The FS Bill enables the FSA to exercise its rule-making, permission varying and intervention powers for the purpose of meeting any of its regulatory objectives. Currently, it can only exercise these powers in order to meet its consumer protection regulatory objective.

Remuneration of executives

(a) Executives' remuneration reports

The FS Bill gives the Treasury the power to make regulations for authorised firms to prepare, approve and disclose remuneration reports covering their executives, officers, employees and consultants (and those of their corporate group). The regulations may provide for such reports to be filed with the Registrar of Companies or the FSA, and for the FSA to publish any reports filed with it. The Treasury has power to create offences in relation to remuneration reports equivalent to those under the Companies Act 2006 in relation to directors' remuneration reports, with comparable penalties.

This will provide a mechanism to implement the final recommendations of the Walker Review which extend current disclosure to include banded disclosure of the remuneration of highend non-board executives. Interestingly, during the debate on the FS Bill's second reading, the Chancellor stated that the Government intends to go further than Sir David Walker has suggested. It plans to consult on regulations for narrower disclosure bands than he proposed, starting with salary packages below the £1 million threshold.

(b) FSA rules about remuneration

The FS Bill will also impose a duty on the FSA to make rules requiring all authorised firms to operate a remuneration policy which is consistent with the effective management of risks and the FSB's Implementation Standards for Principles for Sound Compensation Practices. (The term "remuneration policy" is widely defined to cover a policy about the remuneration not only of officers and employees but also "other persons" of a description specified in FSA's rules.)

The Treasury is given the power, after consulting the FSA, to direct it to consider whether certain authorised firms' remuneration policies comply with the FSA's rules. If the FSA considers that a remuneration policy is not compliant, it may take such steps as it considers appropriate to deal with the failure, including requiring the policy to be revised.

The FSA's new rules may:

  • prohibit persons from being remunerated in a specified way;
  • provide that any provision of an agreement that contravenes such a prohibition is void; and
  • provide for the recovery of any payment made, or other property transferred, under a void provision.

By requiring the FSA to make remuneration rules, the FS Bill gives a clearer basis for the FSA's Remuneration Code which applies at present only to 26 large banks and broker dealers and came into force in a rather half-baked form on 1 January 2010. It will also extend regulation of remuneration to a much larger number of authorised firms. However, the FS Bill will have no retrospective effect on existing remuneration contracts: thus remuneration provisions in agreements made before any new FSA rules on remuneration will not be affected.

Recovery and resolution plans

The FS Bill imposes a duty on the FSA to make rules requiring authorised firms to prepare and keep up-to-date recovery and resolution plans ("RRPs"), more commonly, but rather misleadingly, known as "living wills". This requirement can apply to all authorised firms, or the FSA can exercise discretion over which authorised firms are required to produce an RRP, by specifying the firms to which the rules apply. This will allow for gradual implementation, focusing on the largest, most complex and systemically important firms to begin with. It is also important to note that the FSA's rules must apply to authorised firms in relation to whom any power under Part 1 of the Banking Act 2009 (the Special Resolution Regime) is exercisable.

The FSA's rules must be made in consultation with the Treasury and the Bank of England. The FSA must also have regard to any international standards about documents with a similar purpose to RRPs when making its rules.

Recovery plans: a recovery plan aims to reduce the likelihood of failure of an authorised firm by setting out what the authorised firm would do in, or prior to it becoming subject to, stressed circumstances that would affect the ability of the authorised firm to carry on all or a significant part of its business. A recovery plan might include actions such as restructuring or the scaling back or sale of certain businesses or assets.

Resolution plans: a resolution plan is a plan covering both action to be taken in the event of failure of any part of an authorised firm's business occurring, and action to be taken by the firm where failure is likely. This would include action to be taken by the relevant authorities to resolve the authorised firm. A resolution plan may require a firm to identify obstacles to the application of possible resolution tools by the authorities or to the carrying out of the functions of an insolvency official in the event of the authorised firm's failure and to set out what action may be required to facilitate the application of those tools or carrying out of those functions. This could include provisions to ensure that a data room can be set up quickly and effectively. It could also mean information about the simplification of legal structures ahead of a resolution being triggered.

The FSA is required to consider whether each RRP complies with its rules and to take steps to deal with any failure to comply, including requiring the RRP to be revised.

General rules about RRPs may, in particular, impose a requirement on authorised persons to collect and keep up-to-date certain information. Where the FSA considers that an authorised firm has failed to comply with this requirement, it may require that firm to appoint a skilled person to collect or update the information in question.

The FS Bill also gives the FSA additional enforcement powers relating to the collection of information relating to RRPs.

Short selling

The FS Bill provides the FSA with a new power to make rules to prohibit, or require disclosure of short selling and inserts a new Part 8A into FSMA which provides that:

  • the FSA may make rules banning short selling in relation to certain financial instruments by prohibiting persons from engaging in this practice; and
  • the FSA may make rules requiring the disclosure of information relating to short selling in relation to specified financial instruments. These rules may apply in relation to short selling engaged in before the rules are made where the resulting short position is still open when the rules are made.

Both sets of short selling rules will apply to all persons, whether authorised by the FSA or not. The rules may apply to short selling wholly outside the UK by persons outside the UK, but only in so far as the rules relate to UK financial instruments. They may be targeted at a particular form of financial instrument issued by a specified company.

The definition of short selling for the purposes of the short selling rules includes any case in which a person sells a financial instrument which that person does not own, and will make a profit if the price of that instrument falls before the person has to buy the instrument to deliver it to the buyer or to return to the lender (where the sale was settled with borrowed financial instruments). It also includes any case in which a person enters into a transaction in a different financial instrument to the shorted instrument (whether the first-mentioned financial instrument was in existence before the transaction, or was created as a result of the transaction), where the effect of the transaction entered into is that that person will make a profit if there is a fall in value in the shorted instrument.

The definition of "relevant financial instrument" means that the FSA may make rules regulating short selling in relation to financial instruments admitted to trading in EEA markets, or which have any other connection to EEA markets which may be specified in the rules, as well as financial instruments admitted to trading in the UK.

Where a financial instrument is admitted to trading both on a UK or EEA market and markets elsewhere in the world, the FSA may make short selling rules in relation to that instrument on any or all of the markets on which it is admitted to trading. The same applies where related financial instruments are admitted respectively to trading on an EEA market and a market elsewhere in the world. An instrument will be related for these purposes if the price or value of one instrument depends on the price or value of the other.

The FS Bill enables the FSA to make short selling rules without prior consultation if it considers that it is necessary to do so in order to maintain confidence in the UK financial system or protect the stability of the UK financial system. Initially these emergency short selling rules may last for no more than three months. However, the FSA is given power to direct that emergency restrictions can extend these rules for a further three months provided that it still considers them to be necessary.

The FS Bill also gives the FSA power to require the production of information or documents in order to ascertain whether there has been a breach of any short selling rules.

The FSA may impose an unlimited fine on any person if it is satisfied that the person has contravened any part of the short selling rules or an information requirement. The FSA may alternatively decide to publish a censure to this effect.

There is a four-year time limit on the FSA's ability to take such enforcement action against a person, unless, before the end of the four-year period, the FSA has given a warning notice to the person concerned. The four-year period begins with the first day that the FSA knew that a person contravened any provision of the short selling rules or the information requirement. For this purpose the FSA is to be treated as 'knowing of a contravention' if it has information from which the contravention can reasonably be inferred.

The FSA's disciplinary powers

The FS Bill gives the FSA a range of new disciplinary powers to punish regulatory breaches.

(a) The FSA will be able to suspend permission to carry on regulated activities

Although the FSA can effectively suspend (through the variation process) the permission of an authorised firm to carry on regulated activities in the context of its supervisory work, it is not able to impose a suspension as an enforcement sanction to punish regulatory misconduct.

Under the new provision, the FSA will have the power to suspend, limit or otherwise restrict an authorised firm's permission for up to twelve months where it considers that that firm has contravened a relevant regulatory requirement. Relevant regulatory requirement for these purposes means a requirement imposed under FSMA or by any directly applicable regulation made under the Markets in Financial Instruments Directive ("MiFID").

(Similar powers are used in countries such as Japan, Hong Kong and Australia to require firms to withdraw from given markets or to suspend all operations.)

(b) The FSA will be able to impose a penalty and cancel a firm's authorisation

The FSA is currently prohibited from imposing a penalty on an authorised firm and withdrawing that firm's authorisation for the same contravention. The FS Bill removes that prohibition and so enables the FSA to stop an authorised firm from continuing to carry on all regulated activities at the same time as imposing a financial penalty on that firm.

The FSA will be able to impose penalties for performance of controlled functions without approval

Under FSMA, authorised firms are required to take reasonable care to ensure that no person performs a controlled function (under an arrangement entered into by the firm or its contractor) in relation to the carrying on by the authorised firm of a regulated activity, without that person having obtained FSA approval to do so. However, the FSA does not currently have any power to penalise a person performing a controlled function without FSA approval.

Under the FS Bill, the FSA will be able to impose a financial penalty on a person if it is satisfied that that person has performed a controlled function without approval. It may not, however, impose any penalty if there are reasonable grounds for it to be satisfied that the person did not know and could not reasonably be expected to have known that they were performing a controlled function without approval.

The FSA is not allowed to impose a penalty under this power after the end of the limitation period that is the period of four years beginning with the first day on which the FSA knew that the person concerned had performed a controlled function without approval.

The FSA will be able to suspend or impose restrictions on an approved person who is guilty of misconduct

Section 66 of FSMA sets out the FSA's present disciplinary powers in respect of misconduct by approved persons. The FS Bill adds to the current sanctions (financial penalty and public statement of misconduct) that the FSA can impose for misconduct by enabling the FSA to suspend an approved person from carrying on certain functions, and/or impose restrictions on that person's performance of certain functions, for a maximum period of two years.

The FS Bill also extends the limitation period within which the FSA must take disciplinary action against an approved person from two to four years.

Consumer protection measures

The FS Bill contains a number of measures aimed at improving consumer protection, in particular new powers for the FSA to impose consumer redress schemes on regulated entities.

These proposals should be of particular interest to banks and financial institutions, due to their wide-reaching and potentially significant impact.

(a) Consumer redress

The FS Bill replaces the existing provisions in FSMA which authorise the FSA to require firms to conduct past business reviews and, if liable, to pay compensation to consumers. Instead it gives the FSA new powers to make rules requiring firms to establish and operate consumer redress schemes.

The FSA would be able to use its new powers if:

  • it appears to it that there may have been a widespread or regular failure by a relevant firm (defined as an authorised firm or payment service provider) to comply with regulatory obligations;
  • it appears to it that, as a result of this, consumers have suffered or may suffer loss for which redress would be available in legal proceedings; or
  • it considers that it is desirable to establish a scheme to secure redress for consumers.

The onus will be on firms themselves to investigate whether they have failed to comply with their regulatory obligations, determine the nature and extent of the failure, and whether it may have caused loss to consumers, and to provide appropriate redress to consumers.

Consumers who remain unhappy with a firm's determination under a consumer redress scheme will be entitled to make a complaint to the Financial Ombudsman Service (the "FOS"). The FOS will be required to assess such a complaint (or a complaint about an underlying act or omission which fails to be dealt with by a consumer redress scheme) in accordance with the terms of the scheme rather than its 'fair and reasonable' jurisdiction.

The FSA's disciplinary powers in Part 14 of FSMA (public censure or financial penalty) will apply to relevant firms which are not (or are no longer) authorised firms. This ensures that the scheme can be enforced against payment service providers and firms which are no longer authorised.

(b) Restrictions on the provision of credit card cheques

The OFT and consumer bodies have for some time been concerned about practices associated with credit card cheques, and particularly about the lack of information given to consumers about the nature of such cheques and their associated costs. Responding to these concerns, the FS Bill will make it an offence for a credit card issuer to send unsolicited credit card cheques to a customer, and will limit to three the number of cheques that may be sent in response to any customer request. Cheques may be requested entirely at the instigation of the customer or the credit card issuer may offer to send cheques (for example via a mail shot); however, a failure by the customer to say he does not want cheques does not amount to a customer request for cheques. Customers will also not be able to make open ended requests (for example, asking for two cheques a month for the next six months). The proposed restrictions will not apply to credit card cheques issued to business customers.

(c) Comments on the consumer protection measures

There is a risk that the new consumer redress scheme measures (which, despite the name, will capture all claims brought against an authorised firm carrying on regulated activities) could be used as a means of circumventing existing enforcement channels, which are arguably fairer and the more appropriate procedures for use in practice. Firms wishing to dispute the implementation of a consumer redress scheme will not necessarily have access to the usual safeguards that exist for parties to litigation, despite the fact that the rules will cover breaches of legal obligations as well as regulatory breaches and that such schemes can be implemented in circumstances where defendant firms would normally have a right to defend themselves through the court process. In the third reading of the FS Bill in the House of Commons, it was recognised that more could be done regarding safeguards to ensure consumer redress schemes run properly. Short of bringing proceedings for judicial review, it is unclear however, how the FSA will itself be kept in check with regard to the exercise of new powers, thus leaving the FSA as the main arbiter of a firm's legal rights and duties.

The Financial Services Compensation Scheme ("FSCS") Changes

(a) FSCS contributions to costs of special resolution regime

Under section 214B of FSMA (inserted by the Banking Act 2009) the Treasury may require the FSCS to contribute to the costs incurred in applying the stabilisation powers of the special resolution regime to a bank that is failing.

The FS Bill provides that the Treasury may include interest costs in the calculation of expenses incurred in connection with the use of the stabilisation power. It also provides for the maximum amount which the FSCS may be required to contribute. This is limited to the notional net expenditure (which is the amount that the FSCS would have paid in the hypothetical scenario where the stabilisation power had not been exercised and the bank had entered insolvency proceedings) minus the actual net expenditure (that is any actual payments the FSCS has made in respect of the resolution, net of any recoveries made).

(b) Power to require the FSCS manager to act in relation to other schemes

The FS Bill enables the Treasury to require the manager of the FSCS to make payments on behalf of another compensation scheme (or a government or other authority) that pays compensation in respect of institutions that provide financial services, including institutions that are not authorised financial services firms. (The purpose of the provision is to allow the FSCS to act as a agent to deliver compensation to UK customers of financial firms based overseas with a view to improving depositor protection.)

The FSCS manager will be entitled to decline to act (after notifying the Treasury) on a variety of grounds, including:

  • where it is not satisfied that it will be able to obtain the necessary information, advice or assistance from the scheme's administrator;
  • where it is not satisfied that funding is being provided to meet the expenditure that it will incur in acting on behalf of the relevant scheme manager;
  • where the manager of the relevant scheme has not given an undertaking not to bring proceedings against the FSCS manager; or
  • where there are no arrangements for the reimbursement of expenses arising out of claims brought against the FSCS manager by third parties.

The FS Bill also enables the FSA to make rules in connection with the FSCS manager acting as a paying agent on behalf of relevant schemes. This includes conferring power on the FSCS manager to impose levies to cover its expenses. However, if the FSA does impose such a power, the FSCS manager may only exercise it if it has tried and failed to obtain reimbursement of its expenses elsewhere.

The Asset Protection Scheme and the Banking Act 2009

Asset protection scheme

The FS Bill gives HM Treasury the power to require information or documents from participants or proposed participants in the asset protection scheme or related schemes, which the Treasury designated as corresponding to, or connected with, the asset protection scheme. The Treasury will be able to enforce the requirements by way of an injunction, or in Scotland, by way of an order for specific performance.

Banking Act 2009

Service providers

The FS Bill extends HM Treasury's power to impose recognition orders in respect of inter-bank payment systems on service providers who supply services (such as telecommunication and IT systems) that form part of the arrangements of an inter-bank payment system that is specified by the Treasury as a recognised system.

Amendments to provisions of the Banking Act 2009

The FS Bill also amends the property transfer powers, which can be used to effect a transfer of some or all of the property, rights or liabilities of a failing institution, to include the power to create liabilities. The rationale is that a liability could be imposed on the "bad bank" (what remains of a failing institution) where more liabilities than assets are transferred from a failing institution to a commercial purchaser and public funds are provided to make the transfer commercially viable.

Several oversights in the Banking Act 2009 are also addressed. The FS Bill thus enables HM Treasury:

  • to make a third party compensation order where a building society has been taken into temporary public ownership by way of a subscription to new deferred shares in the society; and
  • to provide for the payment of remuneration and allowances of persons appointed to remove an independent valuer from office.

In relation to the new bank administration procedure, which incorporates provisions of the Insolvency Act 1986, the FS Bill substitutes the provisions for the discharge of an administrator appointed by the court (which are deemed more appropriate for bank administration) for the current process (based on the discharge of an administrator appointed in other ways).

The Banking Act amended FSMA to require the FSCS to contribute to special resolution regime costs and providing for information to be given to the FSCS in that case, but referred only to banks. The FS Bill amends the provision (section 219(3A) of FSMA) to refer to all the institutions subject to the special resolution regime, i.e. banks, building societies and credit unions.

Implementation of the Legislation

On 9 April 2010, the Financial Services Act 2010 was published and the FSA also published a statement relating to the Act together with a related new webpage.

In both the statement and the webpage, the FSA outlined the main changes to its objectives, powers and duties resulting from the new Act.

Different parts of the new Act will take effect at different times. The parts that come into effect immediately include the financial stability objective and the duty to create a consumer financial education body. Parts that come into force two months after the Act was passed include the power to make rules on short-selling and the enforcement powers. A number of provisions will take effect, however only after a commencement order is made by HM Government.


Despite the Government's initial confidence that the FS Bill would complete its Parliamentary scrutiny before the end of the current session, the decision to call a General Election on 6 May 2010 meant that the Bill entered the "wash up" process which sees bills rushed through shortly before the dissolution of parliament prior to a General Election.

Whilst many of the reforms brought about by the FS Bill are relatively uncontroversial, the Government removed some of its more contentious provisions in order to increase the Bill's likelihood of survival. Clearly, it was necessary to get the FS Bill through before the General Election, in the knowledge that the opposition parties plan significant changes to the entire financial supervisory structure. In particular, the Government conceded the removal of provisions relating to:

  • the proposed Council for Financial Stability which would have been responsible for reviewing matters affecting the stability of the UK financial system;
  • the proposed FSA duty to promote international regulation and supervision; and
  • the proposed measures allowing the courts to authorise collective proceedings for financial services claims.

Certainly, given the significance of the FS Bill's implications and the importance of its stated aims, it is a shame that it did not receive the full and further debate and clarification that it deserved.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.