Frequently Asked Questions

Why is the Government introducing this Bill now, almost a year after the financial crisis?

The Government has already taken decisive action to address the impact and causes of the financial crises:

The Banking Act 2009 ensures the UK authorities have the power to deal with failing banks and to protect consumers and taxpayers;
The UK has taken the lead, as Chair of the G20, in reforming international regulation including securing global agreement for tougher rules on pay and bonuses;
We’ve implemented measures to clean up bank balance sheets and get lending going again, including the Asset Protection Scheme;
The Chancellor has asked the Financial Services Authority (FSA), the financial services regulator, to action reforms to banking regulation recommended in the Turner Review;
The Government will implement Walker Review and G20 proposals on remuneration and corporate governance.

The Financial Services Bill builds on these actions, rebuilding a stronger financial system for the future. Importantly, before drafting the Bill, the Government sought the views of a wide range of stakeholders and has taken this feedback into account.

How will the measures in this Bill prevent another financial crisis like we’ve just seen?

The Bill brings in wide-reaching reforms that address critical issues for financial stability:

it will deliver more effective regulation and supervision of individual firms;
there will be greater emphasis on monitoring and managing system-wide risks;
it will enable tough new rules that ensure remuneration is transparent and appropriate and does not encourage excessive risk
it will empower consumers, with better support and protection.

Why is the Bill good news for consumers?

Measures in the Bill, such as the establishment of a new consumer financial education body, will help to support and empower consumers to manage their money well and feel confident and informed about financial services.

It will also protect consumers and help them to seek redress if things go wrong. New powers of redress will enable consumers to collectively take action in court when they have been mistreated or overcharged, speeding up the complaints process and the payment of damages, potentially to hundreds of thousands of customers at a time. The Bill also bans unsolicited credit card cheques, preventing banks from encouraging customers to borrow more than they can afford.

What will the new Consumer Financial Education Body do?

The new independent consumer financial education body will have a mandate to raise levels of financial capability across the UK, improving consumers’ ability to manage their money well, make informed financial decisions and avoid financial difficulty and the distress associated with debt problems. It will build on progress the FSA has already made in delivering the National Strategy for Financial Capability, aiming to increase the profile of financial education and ensure better coordination of financial education projects.

The new body will implement a national Money Guidance service offering impartial, sales-free information and personalised support on all kinds of money issues. National rollout of Money Guidance will begin in spring 2010.

A money guidance service pilot, called Moneymadeclear, is currently underway. Impartial help on money issues can be found at www.moneymadeclear.fsa.gov.uk or by calling 0300 500 5000.

What do the new consumer redress measures mean?

The new measures will mean consumers can obtain redress and compensation more easily in cases of widespread detriment. Groups of consumers will be able to appoint a representative to bring an action through the courts on their behalf. The Bill will also streamline the FSA’s powers to order a review of past practices and secure compensation if there have been legal or regulatory breaches.

Why doesn’t the Government ban credit card cheques altogether?

Unsolicited credit card cheques can encourage consumers in financial distress to go further into debt. It is the unsolicited nature of the cheque that is the problem – cheques can offer a convenient way of borrowing if used carefully, but it is important that consumers make an active decision to request a cheque rather using one because it arrived in the post at a critical time, without fully considering the costs and risks involved.

Will the Bill have any effect on the banks’ lending commitments?

Lending commitments that the Government secured earlier in the year from various UK banks remain in place, in full. The Bill will have no impact on these commitments.

What new measures on pay does the Bill introduce?

The Bill places a duty on the FSA to ensure that firms’ remuneration policies are consistent with effective risk management and in line with global standards. It gives the FSA powers to void any individual contract that contravenes specified rules, and to make provision for the recovery of payments made under that contract contrary to those rules. This extends the current sanctions the FSA can impose for breaches of its remuneration code, and will strengthen the hand of the FSA in ensuring that financial services remuneration does not lead to excessive risk taking. These measures will cover senior executive officers and employees whose actions have a material impact on the risk exposure of the firm.

The Bill also ensures the Government has the power to implement final recommendations on pay disclosure from the Walker Review (to be published on 26 November 2009). Any regulations made under this power will be subject to full consultation and to agreement in Parliament.

Which banks will have to produce a ‘living will’ and what difference will they make in practice?

Recovery and resolution plans (RRPs) or ‘living wills’ are a key tool for authorities and firms to mitigate risks that individual firms pose to the system, and to promote long-term financial stability. RRPs will reduce the probability of firm failure by requiring firms to have in place robust recovery plans to deal with periods of stress, and they will reduce the impact of firm failure if it does occur by ensuring that firms can be quickly and effectively resolved, without recourse to support from taxpayers. The FSA will have the power to require all authorised firms to produce living wills. All UK banks and building societies will need to produce living wills as a priority, potentially expanding to other authorised firms at a future date (which can be specified by the Treasury).

How will the Council for Financial Stability make a difference – isn’t it just another committee of the same members?

The Council consists of the key individuals responsible for financial stability in the UK – the Chancellor, the Governor of the Bank of England and the FSA Chairman. It places financial stability arrangements on a more formal, transparent and accountable basis: the Council is based in statute, with its Terms of Reference laid before Parliament; it will hold quarterly strategic discussions with minutes published for transparency; and HM Treasury will produce an annual report on the Council enable formal Parliamentary scrutiny.

What happens now – when does the Bill become law?

The Bill will be scrutinised by both the House of Commons and House of Lords. Once they have agreed the content of the Bill, it will receive Royal Assent, at which point it becomes law. The intention is for the Bill to be passed in this session of Parliament.

Are you certain that you'll be able to pass this Bill before an election is called, and what happens if you don't?

The Government is confident that the Bill will complete its Parliamentary scrutiny before the end of the current Session.