Background to the Act
3.In 1997, the Government proposed a new system of financial regulation in the UK. A structure for overseeing the UK financial system was created, with distinct roles for HM Treasury, the Bank of England and the Financial Services Authority (“the FSA”) (together, “the relevant authorities”) and distinct responsibilities for overall financial stability issues, which are set out in a memorandum of understanding between the relevant authorities.
4.The Bank of England Act 1998 established the arrangements for the Bank’s current monetary policy responsibilities. Under the 1998 Act, the banking supervision function that had previously been undertaken by the Bank was transferred to the FSA.
5.The Financial Services and Markets Act 2000 (“FSMA”) set out the framework within which the FSA operates, as the single regulator for the financial services industry. It also established the framework for the Financial Services Compensation Scheme (“the FSCS”) to provide compensation for consumers in the event that a financial services firm is unable to meet its obligations to them.
6.The Banking Act 2009 built on this framework to enhance the ability of the relevant authorities to deal with crises in the banking system, to protect depositors and to maintain financial stability. The Act established a new permanent special resolution regime, providing the relevant authorities with a range of tools to deal with banks and building societies that are failing.
7.In July 2009 the Treasury published Reforming financial markets(1), which 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. In this document and following a review of consultation responses, the Government announced its intention to bring forward legislation on the following.