07/09 HM Treasury publishes White Paper on reforming financial markets

Financial services and regulation alert email

HM Treasury has published a White Paper on reforming financial markets, the long-awaited formal response to the Turner Review, published in March 2009.

This document sets out the Government's analysis of:

• the causes of the financial crisis which has led to the world economy being hit by the worst global economic downturn for the last 60 years;
• the actions already taken to restore financial stability; and
• further reforms necessary to strengthen the financial system for the future. 

The proposals outlined in the White Paper cover a wide range of areas and issues, including:

• further reforms to banking regulation: the Government intends to bring forward in the next legislative session a Bill to make provision in those areas where primary legislation is required;
• better monitoring and management of systemic risk: the Government believes that the UK's current institutional framework, whereby the FSA has responsibility for conduct of business and prudential regulation for all financial services firms and the Bank of England has responsibility for financial stability, remains the right approach;
• more effective regulation of individual firms: the Government intends to grant the FSA a formal statutory objective for financial stability, thereby extending its rule making power. This will amount to an amendment of the Financial Services and Markets Act 2000 (FSMA) to require the FSA to promote sound international regulation and supervision and take into account any possible wider economic and fiscal costs in its decision making; 
• protecting the taxpayer: the Government intends for the Financial Services Compensation Scheme (FSCS) to continue to be funded by the financial services industry. The Government intends to conduct further work to investigate the possibility of a pre-funded element to the FSCS covering the deposit taking class; 
• dealing with failure: the Government outlines proposals in the White Paper that deal with the problems posed by "high impact" firms; and 
• ensuring a competitive and fair market for consumers: the Government proposes a series of measures to support and protect consumers when they engage with financial services providers.

On 8 July 2009, the FSA released a Statement noting the publication of the Government's White Paper and that it "welcomes the intention to legislate to give the FSA a statutory objective in respect of financial stability as well as new powers to act in pursuit of this objective."

The Government's primary legislation proposals are set out in Annex A to the White Paper. Policy areas for wider discussion, to enable the Government to develop firm policy proposals, are set out in Annex B to the paper. Specific questions are posed in both annexes. Responses to these questions may be submitted until 30 September 2009.