Banking Regulation Comparative Guide

Published date19 August 2020
Subject MatterFinance and Banking, Financial Services
Law Firm1 Crown Office Row
AuthorMs Edite Ligere

1 Legal framework

1.1 Which legislative and regulatory provisions govern the banking sector in your jurisdiction?

The principal statutes governing the banking industry in the United Kingdom are:

A number of regulations - generally expressed in statutory instrument form - as well as the Prudential Regulation Authority (PRA) Rulebook and the Financial Conduct Authority (FCA) Handbook contain detailed rules applicable to the banking industry in the United Kingdom.

The Payment Services Regulations 2017 (SI 2017/752) (PSR) govern the provision of payment services in the United Kingdom. Those providing such services are required to adhere to the business conduct provisions laid out in PSR.

The primary regulatory framework for consumer credit activities is set out in the FSMA 2000 and in the Consumer Credit Act 1974 (as amended).

The Banking Act 2009 established a Special Resolution Regime (SRR) to facilitate the orderly resolution of banks in financial distress. It includes pre-insolvency stabilisation options, a bank insolvency procedure and a bank administration procedure. An insolvency regime that applies to investment banks (including banks carrying on investment banking activities) is set out in the Investment Bank Special Administration Regulations 2011.

On 1 January 2018, the Benchmarks Regulation (Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (Regulation (EU) 2016/1011) (BMR) came into force. The FCA is the United Kingdom's national competent authority under the BMR. The principal objectives of the BMR are restoration of investor and consumer confidence in the accuracy, robustness and integrity of indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds, and the benchmark setting process itself. The BMR aims to achieve this by ensuring that benchmarks are not subject to conflicts of interest, are used appropriately and reflect the actual market or economic reality that they are intended to measure.

On 27 February 2018, the Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018 (SI 2018/135) (Benchmarks Regulations) came into force in the United Kingdom. The Benchmarks Regulations:

  • designate the FCA as the UK competent authority for the purposes of the BMR;
  • permit the FCA to exercise powers over persons who are not authorised and are involved in the provision of, or contribution of input data to, a benchmark, but are not benchmark administrators as defined in the BMR as 'miscellaneous BM persons';
  • empower the FCA to impose requirements on persons needing them to administer or contribute to a benchmark; and
  • provide for the FCA to regulate benchmark administrators, including the recognition of third-country administrators.

The Benchmarks Regulations amend secondary legislation - including the Financial Services and Markets Act 2000 (Exemption) Order 2001 (SI 2001/1201) and the Consumer Credit (Disclosure of Information) Regulations 2010 (SI 2010/1013) - to reflect the BMR. In addition, they make a minor amendment to Section 293 of the FSMA 2000 relating to the implementation of the EU Cybersecurity Directive (2016/1148/EU).

The Financial Services (Banking Reform) Act 2013 (Commencement No 12) Order 2018 (SI 2018/1306) was published on 5 December 2018; as were the Bank of England (Amendment) EU Exit) Regulations 2018 (SI 2018/1297).

1.2 Which bilateral and multilateral instruments on banking have effect in your jurisdiction? How is regulatory cooperation and consolidated supervision assured?

A number of bilateral and multilateral instruments are relevant - in particular:

  • standards issued by the Basel Committee on Banking Supervision; and
  • international tax standards, such as the Organisation for Economic Co-operation and Development's Common Reporting Standards.

1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers (including sanctions) do they have?

The UK banking sector is regulated for prudential purposes by:

  • the PRA, which is part of the Bank of England, the UK central bank; and
  • the FCA for conduct purposes.

The Financial Policy Committee (FPC), which operates from within the Bank of England, acts as the macro-prudential regulator for the UK financial system.

The FSMA 2000, as amended, sets out the PRA's and the FCA's statutory objectives. The PRA's principal objective is to promote the safety and soundness of the firms it regulates. On 28 March 2018, the PRA published Supervisory Statement (SS)1/18, "International banks: the Prudential Regulation Authority's approach to branch authorisation and supervision", which replaces SS10/14, "Supervising international banks: the Prudential Regulation Authority's approach to branch supervision". SS 1/18 is relevant to all PRA-authorised banks and designated investment firms not incorporated in the United Kingdom that form part of a non-UK headquartered group (international banks) and which are operating in the United Kingdom through a branch, as well as any such firm looking to apply for PRA authorisation in the future. The new approach came into effect on 29 March 2018.

For European Economic Area firms currently branching into the United Kingdom under 'passporting' arrangements and intending to apply for PRA authorisation in order to continue operating in the United Kingdom after its withdrawal from the European Union, this approach will be relevant to authorisations. The PRA will keep the policy under review to assess whether any changes will be required due to changes in the UK financial system or regulatory framework, including those arising once any new arrangements with the European Union take effect after the United Kingdom's withdrawal from the European Union, which will take place on 31 January 2020.

The FCA's strategic objective is to ensure that the relevant markets function well. The FCA's operational objectives are:

  • the consumer protection objective;
  • the integrity objective; and
  • the competition objective.

The FPC's primary responsibility is to protect and enhance the resilience of the United Kingdom's financial system. This involves identifying, monitoring and taking action to reduce systemic risks. Its secondary objective is to support the economic policy of the government.

The PRA is responsible for the prudential regulation and supervision of the banking sector. Under the FSMA 2000 (as amended), it is a criminal offence for a person to carry on a 'regulated activity' in the United Kingdom unless authorised to do so or exempt from the authorisation requirement. Regulated activities are defined in secondary legislation. Deposit taking is a regulated activity that requires authorisation. Other regulated activities that require authorisation include:

  • dealing in investments as principal;
  • dealing in investments as agent;
  • arranging deals in investments;
  • managing investments;
  • safeguarding and administering investments (ie, custody); and
  • providing investment advice and mortgage lending.

Investments include:

  • shares;
  • debentures (including sukuk);
  • public securities;
  • warrants;
  • futures;
  • options;
  • contracts for difference (ie, swaps); and
  • units in collective investment schemes.

On 20 December 2018, the PRA and the Bank of England published a joint consultation paper on further Brexit-related changes to the PRA Rulebook and binding technical standards (Consultation Paper 32/18).

The FCA is the conduct regulator of businesses in the banking sector. The FCA acts a prudential regulator for persons that are not prudentially regulated by the PRA. The FCA took over the responsibility of regulating consumer credit firms in 2014, with these firms being subject to the FCA's consumer protection rules and principles of business. The Bank of England aims to ensure that if and when a bank fails, it does so in an orderly manner, with as little impact on the UK financial system as a whole as reasonably practicable and in line with the SRR. The Treasury is responsible for drawing up the Code of Practice as guidance on how and when the SRR is to be used. The payment services regulator is responsible for the payment services in the UK banking sector.

The FCA has a 'free-standing duty' in respect to financial crime, to which it must have regard when discharging its general functions (Section 1B(5) of the FSMA 2000, as amended). By virtue of this duty, the FCA must have regard to the importance of taking action intended to minimise the extent to which it is possible for business carried on by FSMA-authorised firms to be used for a purpose connected with financial crime. The FCA is responsible for supervising compliance with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 and for taking enforcement action for violations. On 13 December 2018, the FCA published guidance on financial crime systems and controls: insider dealing and market manipulation (Finalised Guidance 18/5). On 20 December 2018, the FCA published an evaluation paper (Evaluation Paper 18/3) on reducing barriers to entry to the UK banking sector.

1.4 What are the current priorities of regulators and how does the regulator engage with the banking sector?

At present, regulators are focused on redefining and strengthening the role of the City of London post-Brexit - a task made significantly more challenging in a COVID-19 world. Given the significant pressure on the banking sector as well as the wider economy triggered by the COVID-19 pandemic, regulators may need to develop new approaches to address the evolving requirements of the current economic landscape in which the banking sector plays a vital role.

2 Form and...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT