Financial Services Bulletin

In this issue
• EU Supervision Package
• Securities Law Directive
• Settlement finality and financial collateral arrangements Consultation

News

A new approach to financial regulation: judgement, focus and

stability

On 26 July 2010, the Treasury published the • a strong independent consumer protection and
consultation document, A new approach to financial markets authority (CPMA).
regulation: judgement, focus and stability. It sets
out the Government’s proposals to reform the UK’s The Government will abolish the tripartite structure
financial regulatory framework. These proposals will and the Financial Services Authority (FSA) will cease to
fulfil the Coalition Government’s commitment to exist in its current form. The Government intends to
provide the Bank of England with control of macro- complete the process of transition to the new regime
prudential regulation and oversight of micro-prudential by the end of 2012.
regulation.
At the launch of the consultation, the Financial
The new system will be designed to challenge practices Secretary to the Treasury, Mark Hoban MP, said: “We
that may threaten the stability of our economy, while want to create a new supervisory approach that takes
bringing a greater level of protection for consumers. In into account the lessons of the past but that is also
brief, the Government intends to create: designed for the future – a future in which supervisors
should have greater discretion to use their own
• a Financial Policy Committee (FPC) in the Bank judgement, and to take a more risk-based approach to
of England; their work.”

• a new Prudential Regulation Authority (PRA) as

a subsidiary of the Bank; and

Issue 6 • October 2010 Issue 6 | Financial Services Bulletin 1

 Agreement reached on EU ownership. In addition to defining how securities can
be bought, lent or sold, the Directive will:
Supervision Package
The Chancellor announced on 22 June 2010 that • require account providers to maintain sufficient
the financial crisis has shown it is imperative to securities against assets;
get the regulatory framework right for the future
strength and stability of the UK, European, and global • help clarify investor protection in the event of
economy. Member States of the EU and the European an account provider becoming insolvent; and
Parliament have now unanimously agreed on the
new architecture for financial supervision in Europe, • help facilitate investor rights pertaining to
including the establishment of three new European those securities
Supervisory Authorities and a European Systemic Risk
Board. The Directive will cover all markets and all securities
across Europe, and affect a number of industry
The new framework will fundamentally improve the participants that previously fell outside the scope
quality and consistency of supervision, ensure more of regulation such as the Markets in Financial
effective rulemaking and enforcement, and better Instruments Directive (MiFID). It will have a
identify systemic risks in Europe’s financial system. The considerable impact on the way that securities are
proposals are supported by the City, and in particular held and traded in the EU, enhancing protection for
cross-border institutions operating from London. investors by clarifying the legal status of securities at
all stages of the financial transaction.
The deal represents a very good outcome for the EU
and the UK. While facilitating better co-ordination
of supervisors, the final deal ensures national The Financial Services Act 2010:
governments and regulators retain their frontline
responsibility to protect national taxpayers’ interests,
an update on commencement
and therefore that the key decisions must remain On 8th April 2010 the Financial Services Act 2010
national while ensuring greater supervisory standards received Royal Assent. The Act makes provision for
across the EU. The framework will come into force various sections to be commenced by order at a later
on 1 January, when the new authorities are due to be date chosen by the Treasury or the Secretary of State.
established and up and running.
The Financial Services Act 2010 (Commencement
No. 1 and Transitional Provision) Order 2010 is due
Securities Law Directive (SLD) to be made shortly and will commence the following
sections with immediate effect:
The European Commission is due to launch a second
public consultation to feed into a planned Securities • a) section 2(2) to (4), which remove the
Law Directive. The Directive seeks to address legal FSA’s public awareness objective, require the
barriers to the safe and efficient treatment of securities FSA to consider the desirability of improving
post-trade, which have arisen as a result of electronic public knowledge of financial matters, and
book-keeping and due to the ways in which securities insert into its consumer protection objective
are often held through a chain of account providers. a requirement to have regard to information
Greater legal certainty will be provided by harmonising provided by the Consumer Financial Education
EU law with respect to securities that are electronically Body (CFEB);
recorded and to address conflicts-of-law regarding

2 Financial Services Bulletin | Issue 6

 • b) section 13, which widens the categories of The FSMA (Contribution to Costs
supervisory notices given by the FSA that may
be published to include decision notices;
of Special Resolution Regime)
Regulations 2010
• c) section 14, which enables the FSA to make
rules requiring firms to establish consumer The Financial Services and Markets Act 2000
redress schemes; and (Contribution to Costs of Special Resolution Regime)
Regulations 2010 (S.I. 2010/2220) were made on 7
• d) section 17 and other provisions which relate September 2010 and came into force on 8 September
to allowing the Treasury to require the Financial 2010. These regulations make revised provision
Services Compensation Scheme (FSCS) to act allowing the Treasury to require the Financial Services
on behalf of other schemes. Compensation Scheme (FSCS) to contribute to the
cost of using the special resolution regime established
This Order also brings into force on 1st April 2011 the in Part 1 of the Banking Act 2009. The Financial
following provisions: Services and Markets Act 2000 (Contribution of Costs
of Special Resolution Regime) Regulations 2009 (S.I.
• (a) paragraph 13 of Schedule 1A of the 2009/807) were then revoked.
Financial Services and Markets Act 2000
(inserted by the Financial Services Act) which
gives the Office of Fair Trading the power to
levy consumer credit licensees or applicants to
meet a proportion of CFEB’s costs; and

• (b) paragraphs 15 and 16 of Schedule 1A

which give the FSA the power to appoint an
independent reviewer of the effectiveness of
CFEB.

The Order can be found on the Legislation.gov.uk

website.

Further commencements will be announced in due

course.

Issue 6 | Financial Services Bulletin 3

 Live consultations

The following consultations are currently open for responses.

A new approach to financial EU Directive 2009/44/EC on

regulation: judgement, focus settlement finality and financial
and stability collateral arrangements
This consultation has launched to gather views on On 6 May 2009 the European Parliament and Council
the Government’s proposals to reform the UK’s adopted Directive 2009/44/EC (the “Amending
financial regulatory framework, providing the Bank of Directive”), which amends Directive 98/26/EC
England with control of macro-prudential regulation on settlement finality in payment and securities
and oversight of micro-prudential regulation. settlement systems (the “SFD”) and Directive
2002/47/EC on financial collateral arrangements (the
This consultation is aimed at financial services firms, “FCD”). Member states have until 30 December 2010
including banks, building societies, insurance firms, to adopt and publish their implementing measures,
Independent Financial Advisors, exchanges, brokers which are to apply from 30 June 2011.
and related trade associations, as well as consumer
representatives. The closing date for responses is This consultation is aimed at participants in the
18 October. payment and settlement industry and other
interested parties such as legal in solvency specialists.
The deadline for responses is 29 October.

4 Financial Services Bulletin | Issue 6

Web links
News
Securities Law Directive
http://ec.europa.eu/internal_market/financial-markets/securities-law/index_en.htm

The Financial Services Act 2010: an update on commencement

http://www.legislation.gov.uk/

Live consultations
A new approach to financial regulation: judgement, focus and
stability
http://www.hm-treasury.gov.uk/consult_financial_regulation.htm

EU Directive 2009/44/EC on settlement finality and financial

collateral arrangements
http://www.hm-treasury.gov.uk/consult_amending_directive_implementation.htm

Any comments on the bulletin,

please email fsma.bulletin@
hmtreasury.gsi.gov.uk

Issue 7 available January 2011

Issue 6 | Financial Services Bulletin 5