Banking reforms become law

A statement by HM Treasury said the Banking Reform Act was the “biggest reform to the UK banking sector in a generation”, and a key part of the government’s plan to “create a banking system that supports the economy, consumers and small businesses”.

The Act implements recommendations of the independent commission on banking, set up by the government in 2010 to consider structural reform of the banking sector, and the parliamentary commission on banking standards, which was formed to review professional standards and culture following revelations of attempted Libor manipulation in 2012.

The reforms follow almost three years of consultation on the future of the UK’s financial sector, and are based on increased supervision through the Bank of England, with new powers to identify and address systemic risks as they emerge.

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The Act also enshrines new laws to separate high street and investment banks and introduces higher standards of conduct, a more stringent approval regime for senior bankers, and criminal sanctions for reckless misconduct that leads to bank failure.

Customers will also be empowered with greater choice, which should incentivise innovation and competition within the banking sector, said Sajid Javid MP, financial secretary to the Treasury.

He said: “This is a major milestone and marks the end of a three-year process, led by the government, to make the UK banking system stronger and safer, so that it can support the economy, help businesses and serve consumers.

“From the outset, the government has built a consensus on this issue and this legislation will deliver crucial changes to the structure of banks, ensuring that UK taxpayers are not on the hook for future bank failures.”

He said the act will also help to deliver much needed competition in the banking sector and increase the conduct standards amongst bankers.”

Sir John Vickers, who was the chairman of the ICB, said: “With key commission recommendations now in law, the UK is at the forefront of banking reform.

“The international reform effort still has further to go – to ensure that banks have deeper capacity to absorb losses, and to build safer structures for banks in the rest of Europe.”