HM Treasury

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.

HM Treasury Consults on Reform of UK Payments Industry

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On July 19, HM Treasury published a consultation paper on the future regulation of the UK payments industry. The payments industry is central to the functioning of the economy, but the government believes it has not always responded effectively to the needs of consumers. The consultation paper details three options for reforming the regulation and governance of payment networks. The government’s preferred option would be to create a new public body called the Payments Strategy Board (PSB), which would set the strategy across the industry. This would be overseen by the Financial Conduct Authority and funded through a levy collected by the new regulator. The government will accept comments on its proposals until October 10. Consultation paper.

Amendments to Money Laundering Regulations 2007 to Come into Force on October 1

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On July 17, HM Treasury published the Government’s response to its consultation on proposed changes to the Money Laundering Regulations 2007 (MLRs) together with its Impact Assessment (June 20). Response.  Impact Assessment.

The Government’s proposals aim to reduce the regulatory burden imposed by the MLRs, while strengthening the overall anti-money laundering (AML) regime. Among the proposals the Government plans to:

  • Retain the criminal penalties in the MLRs (even for minor breaches of the MLRs).
  • Remove the current distinction between bodies listed in Parts 1 and 2 of the MLRs for customer due diligence (CDD) reliance purposes.
  • Strengthen and clarify the powers of the Office of Fair Trading and HMRC.
  • Make the FSA the recognised formal supervisor for recognised investment exchanges (RIEs).

HM Treasury Consults on Sanctions for Directors of Failed Banks

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On July 3, HM Treasury published a consultation paper on sanctions for the directors of failed banks. Consultation Paper.

In its consultation paper, the Government:

  • proposes to introduce a “rebuttable presumption” that a director of a failed bank is not suitable to be approved by the regulator as someone who could hold a position as a senior executive in a bank.
  • Is considering introducing criminal sanctions for serious misconduct in the management of a bank. This would involve the creation of a new criminal offence that would not necessarily involve any element of dishonesty when it is committed.

Responses to the consultation should be submitted by September 30.

Consolidated Version of FSMA Published

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On 12 June 2012, HM Treasury published a revised consolidated version of the Financial Services and Markets Act 2000 (“FSMA”), which reflects the Financial Services Bill 2012-13 in the form introduced to the House of Lords on 11 June 2012. The consolidated version is intended as an illustrative document to aid scrutiny of the draft Financial Services Bill by Parliament and interested parties. Consolidated version of FSMA.

The Financial Services Bill will extensively amend FSMA and other existing legislation, such as the Bank of England Act 1998 and the Banking Act 2009.

The Committee stage of the Financial Services Bill in the House of Lords will commence on 27 June 2012.

UK Government White Paper on Banking Reform

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On 14 June 2012, HM Treasury and the Department for Business, Innovation and Skills (BIS) published a white paper on banking reform setting out the government’s proposals for implementing the key recommendations of the Independent Commission on Banking (ICB) chaired by Sir John Vickers. White Paper.

Key proposals of the White Paper are:

• Retail banking operations will be ring-fenced, with operations core to consumer and small business services separated from investment banking.

• Those ring-fenced operations will face limits on exposures to other banks – they will only be allowed to carry out tasks like facilitating other institutions’ payments and managing liquidity.

• The biggest banks will hold 17% of risk-weighted assets as primary loss-absorbing capital.

• Bail-in bonds will be used to make creditors cover some of the cost of a bank failing, without a full collapse.

• But depositors will still be protected and will have a senior claim to bondholders, as well as a legal guarantee on deposits up to £85,000.

• Banks must comply with Basel III’s 3% tier one leverage ratio.

The deadline for responses to the White Paper is 6 September 2012 with the Government due to publish a draft bill in the autumn. The Government states in the white paper that it is committed to completing all primary and secondary legislation by the end of this Parliament in May 2015. The deadline for banks to comply with all of the ICB recommendations is 2019.