Overview

This bill mandates that certain UK financial institutions create "prudent accounts" alongside their usual financial statements. These additional accounts would reflect the lower of either the historical cost or the current market value (mark-to-market) for their derivative holdings, aiming for a more cautious and realistic picture of their financial health.

Description

The Financial Services (Regulation of Derivatives) Bill amends the Companies Act 2006. It requires financial services companies regulated under the Financial Services and Markets Act 2000 to prepare "prudent accounts" showing the lower of historic cost and mark-to-market values for their derivative exposures. These accounts become the relevant ones for specific parts of the Companies Act (Parts 18 and 23). The bill also grants companies the right to revert to standard Companies Act accounting if EU regulations provide equivalent accounting standards.

Key Changes:

• Parallel Accounts: Mandates creation of additional "prudent accounts" for derivatives using a more conservative valuation.
• Return to Standard Accounts: Allows companies to revert to standard accounting if EU regulations meet certain criteria.
• Definition of Financial Institutions: Clarifies which institutions are subject to the requirements.
• Temporary Nature: The Act ceases to have effect if EU regulations meet the standards laid out.

Government Spending

The bill's impact on government spending is not directly specified in the text. The primary cost would likely come from increased regulatory oversight and enforcement to ensure compliance with the new accounting requirements. However, no specific figures are provided.

Groups Affected

• Financial Institutions: Companies regulated under the Financial Services and Markets Act 2000 will face increased accounting burdens and potentially higher compliance costs.
• Accountants and Auditors: Increased demand for services related to the preparation and auditing of parallel accounts.
• Investors and Creditors: May benefit from more transparent and conservative financial reporting from these institutions, leading to more informed investment and lending decisions.
• Regulators: Increased workload in overseeing compliance with the new regulations.

Powered by nyModel