UK: UK White Paper On Reforming Financial Markets

Last Updated: 14 July 2009
Article by Peter Green and Jeremy C. Jennings-Mares

On 8th July 2009 the HM Treasury ("UK Treasury") published its long-awaited White Paper titled "Reforming Financial Markets" (the "White Paper").1

The White Paper is part of a comprehensive review by the UK government ("Govt.") of UK financial regulation and supervision, which has been ongoing since the outbreak of the global financial crisis in 2007 and the ensuing turmoil in the UK financial markets.

As such, it provides the Govt.'s formal response to the proposed actions recommended in the "Turner Review: A regulatory response to the global banking crisis" (18th March 2009) (the "Turner Review"),2 which set out in-depth analyses of the causes of the financial crisis and identified a number of key areas requiring regulatory reform. Some reforms have already been implemented, notably the special resolution regime and new bank insolvency procedures under the Banking Act 2009, which empower the "Tripartite Authorities," consisting of the Financial Services Authority ("FSA"), the UK Treasury and the Bank of England ("BOE"), to deal with failing banks more effectively.3

Building on the recommendations of the Turner Review, the White Paper proposes extensive reforms to UK banking regulation in order to strengthen the UK banking and financial sector and to enable it to better withstand future financial shocks.

The Govt.'s Firm Policy Proposals for New Primary Legislation

Specifically, the White Paper proposes the following key reforms to be implemented by new legislation:

1. Reforming regulatory institutions

  • Formalising and strengthening the arrangements for institutional cooperation

In the autumn of 2009 new legislation will be introduced to create a new Council for Financial Stability ("CFS") comprised of the Tripartite Authorities and chaired by the Chancellor. The CFS will meet regularly to assess, and to formulate and implement policy responses to, systemic risk and intervene if financial stability is threatened.

  • Strengthening the FSA's governance arrangements and statutory framework

From the autumn of 2009, the FSA will be charged with statutory responsibility for financial stability (a potential conflict with the BOE's remit). Among other things, it will underline the need for the FSA's regulatory and supervisory approach to be more focused on systemic risk (including, e.g., the consequences of a "high impact" firm's failure).

  • Enhancing the FSA's powers

The FSA should be granted greater rule-making, information-gathering and enforcement powers (e.g., suspension or penalisation of individuals or firms) in order to address not only market or consumer risks but also systemic risk. The Financial Services and Markets Act 2000 ("FSMA") will be amended to give the FSA continuing power to impose emergency short-selling restrictions.

  • Expanding the role of the Financial Services Compensation Scheme ("FSCS")

The FSCS should continue to be funded by the financial services industry. In this respect, however, the White Paper envisages that it would be better to have some pre-funding and the Govt. will introduce a level of prefunding in the future (although not before 2012). The FSMA may be amended to expand the FSCS's role and enable it to operate more effectively when acting as the UK single point of contact for deposit guarantee schemes ("DGSs") in other EEA countries or as UK agent for DGSs or other arrangements in other (EEA or non-EEA) countries providing for compensation to be paid to UK customers.

2. Competitive markets that work for consumers

  • Financial capability and money guidance

There should be better consumer education to enable informed and responsible investment decisions. To this end, a new, publicly funded "national money guidance service" will be rolled out in spring 2010.

  • Strengthening the FSA's consumer capability

The FSMA will be amended to require the FSA to establish and operate an independent consumer and information authority.

  • Swift and effective redress

The FSA's 'backstop powers' will be updated to enable delivery of collective redress for consumer complaints where voluntary redress by the firm concerned is not possible. In addition, a mechanism may be introduced for collective legal action by consumers.

Other Potential Reforms for Wider Discussion

In addition to the 'firm policy proposals,' the White Paper suggests a number of other potential reforms for wider discussion and public consultation, prior to formulating firm policy proposals. Those other reforms cover the following areas:

1. Managing systemically significant firms

The FSA should be given powers to regulate "systemically significant" financial institutions more strictly and require more stringent capital and liquidity requirements. Such firms will be required to prepare detailed contingency plans for their own failure.

2. Competitive markets that work for consumers

Reforms are proposed in such areas as (i) barriers to entry and encouraging new entrants to the retail banking market, (ii) access to simple, transparent products and improvements in mortgage insurance, (iii) FSCS governance and accountability and (iv) strengthening crisis management and depositor protection across the EU.

3. Strengthening mutuals

Building society governance should be improved, as well as the disclosure provided by industrial and provident societies to their members.

Market participants are invited to provide their comments and feedback on the White Paper by 30th September 2009, following which the Govt. intends to conduct more detailed consultations on selected areas of reform through the end of this year.

Initial reaction to the White Paper has been somewhat muted. Although it contains a number of specific proposals as set out above, many important issues remain subject to discussion. This is understandable in areas such as bank capital requirements which will need to be aligned to changes to the Basel II framework and the EU Capital Requirements Directive. Despite the introduction of the CFS, however, there is little change to the tripartite arrangements between the FSA, the BOE and the UK Treasury which have come in for criticism during the financial crisis. A number of the issues raised in the Turner Review therefore remain unresolved and will continue to be debated through, and in many cases probably beyond, the White Paper consultation process.

We will continue to monitor further developments and provide updates on the implications of the evolving UK regulatory framework for international banks and other financial institutions.

Footnotes

1 HM Treasury White Paper: "Reforming Financial Markets" (8th July 2009), http://www.hmtreasury.gov.uk/d/reforming_financial_markets080709.pdf .

2 Turner Review: A regulatory response to the global banking crisis (18th March 2009), http://www.fsa.gov.uk/pubs/other/turner_review.pdf . See also FSA Discussion Paper (DP09/2): A regulatory response to the global banking crisis (18th March 2009), http://www.fsa.gov.uk/pubs/discussion/dp09_02.pdf .

3 See, e.g., Morrison & Foerster client bulletin: "Update on the UK Government's Banking Support Measures and the Banking Act 2009" (30th March 2009), http://www.mofo.com/news/updates/files/090330UKBank.pdf .

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Peter Green
Jeremy C. Jennings-Mares
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

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 Mondaq.com’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.

Disclaimer

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.

Registration

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 unsubscribe@mondaq.com 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.

Cookies

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.

Links

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.

Mail-A-Friend

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.

Security

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 webmaster@mondaq.com.

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 EditorialAdvisor@mondaq.com.

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 enquiries@mondaq.com.

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