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Financial Services Bill

19/11/2009

The contents of the Financial Services Bill were largely signalled in advance.  Much of it was originally discussed in the Treasury’s paper “Reforming Financial Markets” earlier this year, while credit card cheques were mentioned in the summer’s Consumer White Paper. The Bill includes provisions to:

•  Set up a Council for Financial Stability consisting of the Chancellor of the Exchequer, the chair of the FSA and the Governor of the Bank of England. The Council would meet quarterly to keep watch on stability of the financial system, and would co-ordinate any action needed to protect or strengthen financial stability
• Amend FSMA to give the FSA an explicit objective on financial stability, requiring it to consider both the economic consequences of instability and the potential consequences of any actions to address stability. The bill extends various FSA powers to meet “any of its regulatory objectives” rather than only addressing possible consumer detriment
• Change the FSA objective on “public awareness” and instead work to enhance “public understanding of financial matters”. The FSA would establish a “consumer financial education body” to address both consumers’ knowledge and their ability to handle their financial affairs - including “the provision of information and advice to members of the public”
• Place a duty on the FSA to “promote international regulation and supervision”
• Allow the Treasury to make regulations to control the “preparation, approval and disclosure” of remuneration reports. These would cover officers, employees, and “connected persons” who come into scope of the regulations
•  Require the FSA to make rules dictating the need for “authorised persons” to have a remuneration policy, with general scope similar to that made available above for Treasury regulations
• Amend FSMA to require firms to prepare and maintain a “recovery plan” and “resolution plan” – the much-discussed “living wills”
• Give the FSA power to prohibit firms from short selling, and to suspend or limit permissions to engage in regulated activities
•   Allow “collective proceedings orders” to be made by a court (High Court, County Court, Court of Session) where financial services claims raise similar or related issues and defines what types of claim are covered.  Regulations could enable the court to make a single award of damages or calculate by reference to formula, and may also modify the effect of the Limitations Act and equivalent provisions
• Provide for “consumer redress schemes” to address “widespread or regular failure by relevant firms”
• Amend the Consumer Credit Act to restrict the circumstances under which credit card cheques can be provided (with an exemption for business use)

The full text of the Bill as introduced and Explanatory Notes is available here

Commitments to increase consumer financial education must always merit welcome. However we hope that separating the need to increase consumer knowledge from consumer ability to handle affairs recognises a point that the FSA also remarked on last month. The Mortgage Market Review identified that consumers can have adequate financial skills but still make poor decisions such as to mis-state their income, because of a focus on “getting the house”.

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