The Banking Reform Act implements the recommendations of the Independent Commission on Banking, set up by the government in 2010 under the chairmanship of Sir John Vickers to consider structural reform of the banking sector.
It also implements key recommendations of the Parliamentary Commission on Banking Standards, which was asked by the government to urgently review professional standards and culture in the banking industry following revelations of attempted LIBOR manipulation in 2012.
The government’s reforms are based on almost 5 years of consultation on the future of the UK’s financial sector, which they claim represents the biggest ever overhaul of Britain’s banking system.
Since 2010, the government has acted to transform the banking industry through four key areas of reform:
- Supervision: the government has put the Bank of England back at the centre of the supervisory regime, with new powers to identify and address systemic risks as they emerge, ensuring safer banks that are less likely to bring down the economy in the future.
- Structure: the government has brought forward new laws to separate the branch on the high street from the trading floor in the City to protect taxpayers when things go wrong.
- Culture: the government is imposing higher standards of conduct on the banking industry by introducing a criminal sanction for reckless misconduct that leads to bank failure, and a more stringent approval regime for senior bankers.
- Competition: the government is acting to empower consumers by giving them greater choice, which should incentivise innovation and competition within the banking sector.
Chancellor George Osborne said:
"Today we’ve put in place the final piece of legislation to enact the biggest reforms to Britain’s banks in a generation.
"From putting the Bank of England back at the heart of safeguarding financial stability to implementing the recommendations of our Vickers Commission so no bank is too big to fail, we’ve taken the action needed to build a banking system that delivers for Britain in the future.
"It’s part of a formidable agenda for economic policy over the years ahead, a long term economic plan for Britain that delivers for hardworking people."
City Minister Andrea Leadsom said:
"This is a major milestone and marks the end of a five year process, led by the government, to make the UK banking system stronger and safer so that it can support the economy, help businesses and serve customers.
"From the outset the government has built a consensus on this issue and this legislation will deliver crucial changes to the structure of banks. Our reforms are also helping to deliver much need competition in the banking sector and increase the conduct standards amongst bankers."
Sir John Vickers, who chaired the Independent Commission on Banking, said:
"The crisis showed the dangers to the economy and public finances of an unstructured banking system with too little capital. Banking reform – notably ring-fencing and greater loss-absorbency – has now set the framework for banks to serve the economy properly in the future."
