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23 February 2009

New Banking Act comes into effect

The Banking Act 2009 came into effect on 21 February. The Act strengthens the UK’s statutory framework for financial stability and depositor protection.

The Act implements a new permanent special resolution regime, which provides the Authorities with tools to deal with failing banks and building societies, and replaces temporary powers provided by the Banking (Special Provisions) Act 2008 which expired on 20 February.

The Economic Secretary to the Treasury, Ian Pearson MP, said:

"The Banking Act provides a permanent and appropriate regime for the resolution of failing banks. It is a major step forward in the Government’s ongoing programme to strengthen stability and confidence in the UK banking system, in the wake of the global instability experienced by financial markets in the last eighteen months. I am particularly grateful to the contribution of the expert liaison group of industry participants in developing these proposals.”

Members of the expert liaison group, which has advised the Treasury on developing secondary legislation under the Act, also commented.

Guy Sears, (Wholesale Director of the Investment Management Association) said:

"The IMA supports the need for an explicit framework of powers to protect depositors and address bank failures. The Banking Act is a welcome step forwards. We are grateful for the open and constructive approach with which the Treasury engaged with us on the very complex technical impacts of the legislation. We remain committed to the future work of the expert liaison group."

Roger Brown (Executive Director of the British Bankers’ Association), and Peter Beales (Director and Secretary of the London Investment Banking Association), added:

"The timetable for the legislation and the complexity of many of the issues that have had to be addressed have presented major challenges for the Authorities and the industry alike. Constructive discussions, including in the expert liaison group, have made an important contribution in a number of key areas. Going forward, we are confident that any issues identified will be effectively addressed, and that the group will continue to play an important role."

Notes for editors

1. The Banking Act 2009 was introduced into the House of Commons on 7 October 2008 and attained Royal Assent on 12 February 2009.

2. The Parts of the Act which bring in the special resolution regime (SRR) were brought into force on 21 February 2009, in time for the expiry of the Banking (Special Provisions) Act 2008.

3. The Banking Act builds on the tripartite framework to enhance the Authorities’ (the Bank of England, the Financial Services Authority and the Treasury) ability to deal with crises in the banking system, to protect depositors and to maintain financial stability. The centrepiece is a permanent SRR, providing the Authorities with a range of tools to deal with banks in financial difficulties. In particular, the SRR builds on and refines the temporary tools introduced by the Banking (Special Provisions) Act 2008 (BSPA), which was used to bring Northern Rock plc into temporary public ownership in February 2008, and to resolve Bradford & Bingley plc in September 2008 and the UK subsidiaries (Heritable and Kaupthing Singer and Friedlander) of two Icelandic banks in October 2008.

4. The Act also contains a range of other measures: to improve the legal framework and increase the efficiency of the Financial Services Compensation Scheme; to enhance the operation of regulatory frameworks for preventing firms from failing; to protect consumers; and to strengthen the Bank of England; and powers for the Treasury to lay regulations to deal with Investment Bank insolvency.

5. The Economic Secretary to the Treasury announced on 9 October the establishment of a new expert liaison group, to help prepare the secondary legislation for the SRR. This group has met regularly since 31 October 2008. It is made up of representatives from the banking sector, legal experts and members of the Authorities.

6. The Act has put this group with a statutory basis as the Banking Liaison Panel and the panel will continue to advise the Government on the market effects of the SRR, the Code of Practice, other related secondary legislation and any other matter referred to them by the Treasury.

Secondary Legislation

7. Relevant Secondary legislation for the SRR was presented to Parliament on 20 February 2009.  This includes:

8. Versions of the Act and Statutory Instruments are available via the OPSI website

Code of Practice

9. A Code of Practice will be will be published and laid before Parliament today. It will support the legal framework of the special resolution regime, and provide guidance as to how, and in what circumstances, the Authorities will use the special resolution tools.

10. The Code is issued by HM Treasury, having consulted the Financial Services Authority, the Bank of England and the Financial Services Compensation Scheme, and a full public consultation on 6 November 2008.

11. Having made the Code of Practice, the Treasury will consult the Banking Liaison Panel, a statutory body under the Act that has the role of advising the Treasury on certain matters relating to the special resolution regime, including the Code. A revised Code will be issued in due course.

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