Financial Services Bill 2012-13

Legal Uncertainty in Proposed Ring-Fencing Provisions

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On February 5, the Financial Markets Law Committee published a paper highlighting uncertainties identified in relation to the ring-fencing provisions contained in the draft Financial Services (Banking Reform) Bill 2012 – 2013.  Three key areas were identified as being problematic, as follows:

  • Compatibility with EU law: the operation of the depositor preference and group support provisions may conflict with the proposed Recovery and Resolution Directive and certain provisions, as drafted, may also indirectly discriminate against nationals of other member states.
  • Drafting uncertainty: the current definition of “core services” is very unclear and the proposed transitional provisions create uncertainty as to the enforceability of existing arrangements between banks and customers.
  • Scope of the ring-fence: as drafted, the legal, economic and operational independence of the ring-fenced bank is uncertain due to a lack of clarity in the provisions setting out the height and location of the ring fence.

Terms of Reference for Wheatley Review of LIBOR Published

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On July 30, HM Treasury published a press release setting out the terms of reference for the independent review of LIBOR to be carried out by Martin Wheatley, Chief Executive-designate of the Financial Conduct Authority. Press Release.

Issues to be considered are:

  • Whether participation in the setting of LIBOR should be a regulated activity.
  • The construction of LIBOR, including the feasibility of using actual trade data to set the benchmark.
  • The appropriate governance structure for LIBOR.
  • The potential for alternative rate-setting processes.
  • The financial stability consequences of a move to a new regime and how a transition could be appropriately managed.
  • The adequacy and scope of sanctions for tackling LIBOR abuse. In particular, it will cover the scope of the UK authorities’ civil and criminal sanctioning powers with respect to financial misconduct, particularly market abuse and abuse relating to the setting of LIBOR and equivalent rate-setting processes, as well as the FSA’s approved persons regime and investigations into market misconduct.

There will be a four-week public consultation starting on August 10 with Mr. Wheatley aiming to publish his conclusions and recommendations by the end of September. The UK government intends to implement the findings of the review in the Financial Services Bill 2012-13.