The Banking Reform Act 2013 was given Royal Assent yesterday (December 18) in a bid to make the banking system safer in the wake of the financial crisis and the Libor rate rigging scandal.
Under the Act, banks will be forced to ring-fence their High Street retail arms from their higher risk investment divisions by 2019 in a major overhaul of the system, which has been hailed by Treasury Financial Secretary Sajid Javid as a major milestone.
According to ministers, the new Act, which was largely based on recommendations made in the 2011 Vickers independent commission on banking, will make the banking sector “stronger and safer”.
The Act will also make senior managers liable for criminal prosecution for reckless misconduct, a first for the industry, and will give insured depositors preference if a bank enters insolvency and will also require banks to raise more capital to absorb losses, if that is deemed necessary.
However, while the Government is delighted that the Act has become law, Mr Javid warned that it would not necessarily stop future governments intervening in a financial crisis.
He said that all the Government can do is to learn the lessons of the past and ensure that a system is created that is more robust and safer than the system that was in place before, which he believes this legislation to have done.
The final law also includes many of the recommendations of the parliamentary commission on banking standards, which was led by Tory MP Andrew Tyrie, a former member of the Bank of England’s Monetary Policy Committee.
Mr Tyrie told MPs last week that the culture at the top of the banks is changing but that the task of the new legislation is to entrench that change for a generation.
Mackrell Turner Garrett Solicitors in London
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