The Government will be able to force the FCA to raise fees on the financial services industry to cover the public cost of international regulation under proposals in the draft banking reform bill published today.
The bill proposes that the Treasury can direct the Prudential Regulation Authority, FCA and the Bank of England to charge the financial services firms that they regulate a fee to cover Government costs.
It states: “This would mean that the Treasury could recover from the financial services industry expenses it incurs in relation to work within international organisations in connection with financial stability or financial services, such as the costs associated with the membership of international financial stability fora like the Financial Stability Board.
“The growing importance of the FSB and other international bodies as forums for setting international standards which promote financial stability or relate to financial services make it vital that the UK can continue to be well represented in these forums. The Government expects costs to industry to be minimal.”
It states: “This policy aims to insulate banking services critical to individuals and small and medium- sized enterprises from shocks elsewhere in the financial system, and to make it easier to ensure continuous provision of those services.
The Government is considering whether to exclude derivative products such as interest rate swaps from the retail ring-fence in light of recent scandals as suggested by senior Liberal Democrats.
Chancellor George Osborne has asked the Parliamentary Commission on Banking Standards chair Andrew Tyrie to consider whether ring-fence banks should be able to offer simple derivatives to their customers. It will report back on 18 December with its final conclusions.
There are also sweeping reforms to the Financial Services Compensation Scheme with new statutory duties to operate including a requirement to operate swiftly and efficiently for the benefit of claimants, mitigate taxpayer costs and provide the Treasury with accounting and management information.
The FSCS will also become part of the Treasury after a reclassification as a Government body by the Office for National Statistics. The bill says it will not affect the wider financial services industry and the Treasury will have no powers to intervene in the FSCS day to day affairs. The FSA and successor regulators will remain responsible for making the FSCS rules and setting the annual levy on the industry.
Tyrie says: “This bill is a crucial part of the Government’s approach to improving the stability and competitiveness of the UK banking system
“It is vital to get this right, not just for the sake of the banking industry but in the best interests of the economy as a whole and the millions of businesses, households and individuals who rely on it.
“Structure influences the incentives and behaviour of banks and bankers. With that in mind, the Commission will examine the draft Bill to see what contribution it is likely to make to improving banking standards.”
He says there is a lot of detail still to come and “a lot of ground to cover in a short amount of time” but will be calling for written evidence next week.