Category:

Change Overview and Rationale

The Chancellor of the Exchequer has proposed a radical reformulation of financial services regulation in the UK unifying for the first time macro-prudential regulation, day-to-day oversight, and conduct of business regulation of all financial services firms. Under the UK’s current tripartite system, HM Treasury, the Bank of England, and the Financial Services Authority (FSA) share responsibilities. All three entities have come under fire for failing to anticipate the financial crisis, and the tripartite system has been blamed on many fronts for failing to deal with the crisis in a timely and effective manner. This legislation seeks to address some of the division and miscoordination alleged to have occurred amongst the tripartite entities. The proposed three new structure would do away with the FSA, and unify regulation and supervision under new structures housed in the Bank of England.

The “shadow” banking system played a major role in the financial crisis, but was not a central focus of many countries’ reform legislation and potentially remains largely unregulated. At the November 2010 Seoul Summit, the G20 Leaders heralded the development of new bank capital and liquidity requirements under Basel III. But concerned by the growing importance of the “shadow banking system,” which grew out of the securitization of assets and the integration of banking with capital market developments, the G20 Leaders called on the Financial Stability Board (FSB), in collaboration with other international standard setting bodies, to develop recommendations to strengthen the oversight and regulation of the “shadow banking system” by mid-2011.

On October 18, the Basel Committee issued a report documenting Basel Committee members’ progress in adopting Basel II, Basel 2.5 and Basel III as of September 2011. The report provides a high level summary of the the status of domestic legislative and rule-making intended to incorporate the Committee’s capital standards into national law or regulation according to the internationally agreed time frames.