New finance bill focuses on risk management

The financial services bill aims to strengthen financial regulation and support better corporate governance, as well as offering consumers greater protection. This move gives the sector’s regulator, the Financial Services Authority, the power to ‘tear up’ bankers contracts from 1 January 2010 if it feels that the payment structure encourages the individual to take too much risk.

The bill, published in full today (19 November 2009), also establishes the creation of a Council for Financial Stability. Chaired by the chancellor of the exchequer, the council will help the sector focus on understanding and managing system-wide risks.

Also laid out are tougher requirements for banks to create recovery and resolution plans to be put in place if a bank fails. These ‘living wills’ are hoped to simplify the process of winding up a bank and help to avoid tax payers having to prop them up.

The Federation of Small Businesses (FSB) welcomed the governance reforms for the financial sector but warned that they must be followed through and not used for political gains.

John Walker, FSB national policy chairman, said: ‘It has been a tough year for small businesses, with shoppers spending less, larger companies paying their small suppliers later and banks only just starting to lend again, although often at high rates.

‘Many are starting to feel confident about their future prospects and it is important that any legislation in the next few months, particularly on the banking sector, helps to develop the good feeling rather than being used to divide up the political ground ahead of the General Election.’