Overview

The Bank of England and Financial Services Bill [HL] makes significant changes to the governance of the Bank of England, strengthens the regulation of financial services, and alters the process for issuing banknotes in Scotland and Northern Ireland. The act aims to improve financial stability, enhance consumer protection, and increase diversity within the financial sector.

Description

Bank of England Governance

The Bill alters the composition of the Bank of England's Court of Directors, abolishes the Oversight Committee, and redistributes its functions. It clarifies the roles and responsibilities of non-executive directors, including determining the remuneration of the Governor and Deputy Governors. Changes are also made to the membership and procedures of the Financial Policy Committee and Monetary Policy Committee, including increased transparency in decision-making processes. New provisions are included for audits, reviews and examinations of the Bank's activities, including increased scrutiny by the Comptroller and Auditor General.

Financial Services Regulation

The Bill extends the senior managers regime and rules of conduct to all directors of authorized persons, not just relevant authorized persons. It strengthens enforcement mechanisms for misconduct, clarifies the meaning of insolvency for purposes of determining the cause of a financial institution's failure, and addresses the enforceability of credit agreements. New regulations are introduced to govern “transformer vehicles,” special-purpose entities designed to assume and manage risks. The bill also establishes new rules regarding pensions guidance and advice, ensuring individuals receive suitable guidance before transferring annuities.

Banknote Issuance

The Bill provides the Treasury with the power to designate new banks as authorized to issue banknotes in Scotland and Northern Ireland, allowing for a transfer of this authority from existing issuers while maintaining the overall system.

Government Spending

The bill does not explicitly state the overall impact on UK government spending. However, it introduces new requirements for reporting and oversight of the Bank of England's activities, which might entail additional costs for both the Bank and the Treasury in terms of staffing, resources, and compliance. Similarly, the new regulatory requirements for financial services could lead to increased costs for the regulated entities and potentially for government oversight agencies.

Groups Affected

• Bank of England: Significant changes to governance structure, increased accountability, and additional reporting requirements.
• Financial Conduct Authority (FCA): Increased responsibilities and reporting requirements, particularly concerning senior management functions, conduct rules, and transformer vehicles.
• Prudential Regulation Authority (PRA): Increased responsibilities regarding oversight of financial institutions and reporting to the Treasury.
• Financial Institutions: Subject to a strengthened senior managers regime and rules of conduct; increased scrutiny and potential costs associated with compliance.
• Consumers: Enhanced consumer protection through strengthened regulations, particularly around credit agreements and pensions.
• Banks in Scotland and Northern Ireland: Potential changes to the process of issuing banknotes.
• Treasury: Increased oversight responsibilities and potential increased costs associated with monitoring and compliance.

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