The UK’s system of financial regulation has been thoroughly reformed following the financial crisis of 2008, with the Bank of England (“the Bank”) being given a central role. The Financial Services Act 2012 gave the Bank wide responsibilities for financial supervision through a new body – the Prudential Regulation Authority. These increased responsibilities mean that the arrangements for the governance, accountability and transparency of the Bank have become more important. The Bill aims to make improvements in these areas. The Bill also makes some changes to the procedures of the Bank’s Monetary Policy Committee (MPC). It covers:
- Internal governance and oversight of the Bank
- Extension of the senior managers’ regulatory regime
- Pensions guidance and advice; and
- Measures in respect of bank note issuance by banks in Scotland and Northern Ireland.
Some of the main measures contained in the Bill include:
- Making the Deputy Governor for markets and banking (currently Dame Minouche Shafik) a member of the Bank’s court of directors (“the court”).
- Giving the Government the power to make further changes to the membership of the court by secondary legislation.
- Abolishing the Oversight Committee and transferring its oversight functions to the full court.
- Making changes to the MPC’s procedures including faster publication of its minutes and reducing the number of MPC meetings from 12 to 8 a year.
- Alllowing the National Audit Office (NAO) to undertake value for money studies of the Bank, subject to some limitations.
- The supervisory body the Prudential Regulatory Authority becomes a committee of the Bank – the Prudential Regulation Committee
- The Senior Managers and Certification regime, which ascribes personal responsibility for controlled functions within financial service firms, is extended to all regulated firms, rather than just deposit takers. As part of this change, however, the ‘reverse burden of proof’ of the previous regime is revoked.
- The remit of the guidance service Pension Wise is extended to cover people with annuities, and provision is made to require people who want to sell an annuity income stream above a certain value to take professional advice before doing so.
The Bill was introduced into the House of Lords. There, it was the abolition of the Oversight Committee, the extent to which the NAO would be allowed to scrutinise the Bank and the abolition of the reverse burden of proof in the Senior Managers and Certification regime which received particular attention. A number of Government new clauses were introduced in the Lords covering the financial services regulation aspects of the Bill. More detail on the Bill’s stages in the House of Lords are in a separate Library note, The Bank of England and Financial Services Bill [HL]: Lords Stages.