Banking Reform Act 2013

Banking Reforms

• The biggest reforms to the banking sector in a generation aim to make banks more resilient to shocks, easier to fix when they get into difficulties, and reduce the severity of future financial crises.
• The reforms aim to protect retail customers from being excessively affected by bank losses and prevent taxpayers' money from being used to bail out banks.

The Banking Reform Act

• The Act received Royal Assent in December 2013 and brings into law structural and cultural changes to the banking system.
• The Act will make the financial system more responsive to consumers.

Background

• A White Paper on banking reform was published in 2012, setting out proposals for reform of the banking sector based on the Independent Commission on Banking's recommendations.
• The consultation on the white paper closed in September 2012, and responses were used to develop the draft Banking Reform Bill.
• The draft legislation was scrutinized by the Parliamentary Commission on Banking Standards (PCBS), leading to amendments to the Bill.

Parliamentary Commission on Banking Standards

• The PCBS was appointed in July 2012 to consider and report on the draft Banking Reform Bill.
• The Commission's fifth and final report, 'Changing banking for good', focused on individual accountability, corporate governance, competition, and long-term financial stability.
• The government responded to the report in July 2013 and endorsed the Commission's principal findings, intending to implement its main recommendations.

Independent Commission on Banking

• The Independent Commission on Banking was set up in June 2010, chaired by Sir John Vickers, to review and make recommendations on the structure of the banking system.
• The Commission published an issues paper, interim report, and final report, recommending separating high street banks from investment banks and making investors pay for investment banks' losses.
• The government responded to the Commission's final report in December 2011.

Financial Services Act

• The Financial Services Act, which came into force on 1 April 2013, makes fundamental changes to the way financial services firms are regulated.

Global Financial Stability

• To safeguard financial stability, financial institutions need to build up enough high-quality capital to cover their own losses and prevent insolvency.
• Agreed principles and steps are necessary to allow for timely and orderly resolution of failing institutions.