Programme for Government: response to comments on banking

Reforming the banking sector is a cornerstone of the coalition agreement. It is an issue that has generated a great volume of responses to the Coalition’s Programme for Government, reflecting the importance that this matter has for the public. Many of the points raised, such as the potential separation of retail and investment banking will be addressed through the Independent Commission on Banking.

The Commission, which will be led by Sir John Vickers, will investigate the structure of banks and competition in the banking sector.

The Commission will produce a final report by the end of September 2011. The Commission will report to the Cabinet Committee on Banking Reform - chaired by the Chancellor with the Secretary of State for Business, Innovation and Skills as Deputy Chair.

Financial sector regulatory reform was another key concern, with many comments calling for the abolition of ‘the Financial Service Authority’s one size fits all’ approach. In June, the Chancellor announced in his Mansion House speech that responsibility for prudential regulation would move to the Bank of England and that a new Consumer Protection and Markets Authority would be established, as part of a fundamental reform of the regulatory structures of the sector. A Prudential Regulation Authority will be set up as a subsidiary of the Bank of England, which will be responsible for day-to day supervision of financial institutions with a primary objective to promote the stability of individual firms.

We received a large number of comments regarding the levels of remuneration received by those in the banking sector, and corporate governance of the sector in general. Most people would accept that pay levels in the financial services sector have got out of kilter with pay levels in the rest of society. As part of the work being undertaken to reform the financial services sector the Government will take action to tackle unacceptable, risky bonuses. The Government will also ask the FSA to examine further options in the forthcoming review of its remuneration code.

There were a series of comments related to the customer service of banks to their retail customers. The Government has made it clear to the banking sector that banks must serve the economy, and that only in this way will they begin to regain the trust and confidence of the public. A consumer protection and markets authority (CPMA) will therefore be established as the single integrated conduct regulator, taking a tougher, more proactive and more focused approach to regulating conduct in financial services and markets. The CPMA will regulate the conduct of all firms in their dealings with ordinary retail consumers, taking a proactive approach as a strong consumer champion.

Many responses reflected the need to help businesses get access to the lending they need to grow. Access to finance is essential if businesses are to invest, grow and make their important contribution to supporting the economic recovery. The Government has recently published a Green Paper on business finance to help inform and take forward its agenda on credit and other sources of finance for businesses.

The paper considers the broad range of finance options for businesses of different sizes including bank lending, equity and corporate debt, to ensure that the banking system and financial markets meet the needs of the economy in the long-term.

Finally, we received a large number of comments calling for an introduction of a financial transaction tax. The Government is committed to a fairer tax system and a banking sector that makes a fair contribution in respect of the potential risks it poses to the UK financial system and wider economy. The Chancellor announced the introduction of a banking levy in the Emergency Budget, which we expect will raise around £2.5 bn each year from the banking sector.

Programme for Government: response to comments on banking

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