Consultation Launched On Strengthening Financial Stability, Depositor Protection In UK

by Jason Gorringe, for LawAndTax-News.com, London

04 July 2008

Proposals for strengthening the framework for financial stability and protecting depositors were published on Tuesday by HM Treasury, the Financial Services Authority and the Bank of England.

The proposals build on a consultation document published in January, and will now be the subject of a further period of consultation, prior to the introduction of legislation in the autumn.

They focus on five key objectives, which have received widespread support from stakeholders in the financial services industry and consumer groups, according to the Treasury. They are:

• Strengthening the stability and resilience of the financial system - in the UK and internationally;
• Reducing the likelihood of individual banks facing difficulties - including regulatory interventions and liquidity assistance;
• Reducing the impact if a bank gets into difficulties;
• Providing effective compensation arrangements in which consumers have confidence; and
• Strengthening the Bank of England, and ensuring effective coordinated actions by authorities, both in the UK and internationally.

Launching the consultation document, the Chancellor of the Exchequer, Alistair Darling, observed that:

"No system of regulation can or should prevent the failure of each and every institution, but we must do everything possible to prevent problems which could pose a wider threat to stability."

"The challenge is to ensure that the authorities can act quickly and decisively where necessary to support financial institutions. These proposals will give the authorities the full range of powers they need."

"They do so by entrenching the model established a decade ago - the FSA responsible for individual institutions, the Bank of England for the stability of the financial system as a whole - but by providing each institution with new powers, and improving coordination between them."

Chairman of the FSA, Callum McCarthy added:

"We are working closely with the Treasury and the Bank of England to strengthen the stability and resilience of the financial system and reduce the likelihood of banks failing. This legislation is one of the most important changes of the last decade and its influence will last for decades to come."

"We will consult later this year on the supervisory aspects of the new banking resolution regime and for changes to depositor compensation and will work with our tripartite partners to implement the new arrangement effectively," he concluded.

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