Overview

This bill mandates that certain financial institutions maintain "prudent accounts" alongside their standard accounts, reflecting a more conservative valuation of their derivative holdings. These parallel accounts use the lower of historic cost or market value for derivatives, aiming to provide a more accurate picture of their financial health.

Description

The bill amends the Companies Act 2006. It requires financial services companies regulated under the Financial Services and Markets Act 2000 to create additional accounts, called "prudent accounts of true capital and true profits". These accounts value derivative assets at the lower of their historical cost or market value. This ensures a more cautious assessment of their financial position, reducing reliance on potentially volatile market valuations. The bill also grants companies the right to revert to standard Companies Act accounts if EU regulations meet certain criteria, and provides a definition of "financial services company" as those regulated under the Financial Services and Markets Act 2000.

The Act will cease to have effect if the European Union's accounting regulation (IAS Regulation 2002) produces accounts deemed satisfactory by the Secretary of State. This "satisfactory" status depends on the EU accounts fulfilling the requirements for prudence including the absence of unrealised profits, provision for likely contingent liabilities and valuing financial instruments at the lower of cost and net realisable value.

Government Spending

The bill does not directly specify any changes to government spending. The primary impact would be indirect, potentially affecting the stability of the financial system and thus influencing the need for government intervention or bailouts in future.

Groups Affected

• Financial institutions: Primarily those regulated under the Financial Services and Markets Act 2000. They will have increased accounting burdens, needing to prepare and maintain parallel accounts. This could increase costs.
• Auditors: Increased workload in auditing both sets of accounts.
• Investors: May benefit from more transparent and conservative reporting of financial institutions’ positions, providing a more realistic view of risk.
• Government: Potential impact on financial stability and the need for future government intervention, though not explicitly addressed in the bill's text.

Powered by nyModel