(HMT) Government to strengthen resolution arrangements for investment banks

Financial Services Secretary Paul Myners today published a report setting out the Government's initial thinking on reforms to strengthen the UK's ability to deal with the failure of an investment bank.

Like other financial centres, London was affected by the collapse of Lehman Brothers in September 2008 and the events that followed. The Government is committed to implementing reforms that will enable an easier resolution of a failing investment bank should any such event happen again.

The report outlines the Government's thinking on the changes to market practice, regulation, and insolvency law that might be needed to deal with any future failue of a major investment bank.

The report considers the treatment of investment banking clients after default, the future of their assets, and the treatment of their open or unreconciled trading positions. It also examines what can be done to make the process of insolvency more effective, and to limit the damage that may be done by a failing investment bank.

These reforms are part of a package of steps aimed at renewing the financial services sector, other aspects of which will be laid out in the Government's forthcoming paper on financial regulation.

The reforms which are considered in this report demonstrate the Government's commitment both to financial stability, and to the future of London as a global investment banking hub.

Commenting on the report, Paul Myners said:
"The UK's insolvency regime is an important aspect of its attractiveness as an international centre for investment banking. The Government is committed to maintaining these advantages and strengthening the existing solvency regime."

(HMT) Report sets out vision for UK financial services sector

A reformed financial services sector will play an important role in Britain's economic recovery, according to a report published today by the Financial Services Global Competitiveness Group, co-chaired by the Chancellor Alistair Darling and former Citi Chairman Sir Win Bischoff.

The report, which reflects the view of the UK's financial services leaders, states that the UK's financial services sector can continue to be a world leader by working as a genuine partner of British business and emerging economies while embracing the need for global regulatory reform.
The Group was tasked in June 2008 with examining the medium to long-term challenges to London's continued success in global financial markets.

Working against the backdrop of the most severe financial crisis in generations, the Group has proposed a ten to fifteen year framework for strengthening the UK's place in the rapidly changing global financial services industry.

The report highlights the contribution of regional financial centres, noting that the majority of financial sector jobs are based outside the City of London, providing employment for hundreds of thousands of workers in regional economies. It also argues that the UK-based industry must seize opportunities to help meet the financial services needs of businesses and citizens in emerging markets, such as China.

The Group acknowledges the huge fiscal costs of the banking crisis to the global economy, taxpayers and public finances, and strongly argues that effective regulation - with the UK taking a leading role in formulating global and European standards - will be the most important determinant of the sector's future success.

Alongside regulation, the Report also highlights the importance of maintaining effective long-term performance in areas such as the UK's skills base, tax environment, innovation and promotional efforts to ensure that the financial services sector is well positioned to play a role in meeting the future economic opportunities of the UK and global economy.

Speaking ahead of the Report's formal launch at the London School of Economics, Alistair Darling said:

"Next month, we will publish proposals for strengthening the regulation of the financial services industry. Building on that we need to plan for the future. Britain has been a world leader in banking for centuries.

Financial services will always be an important part of our own economy, and not just in London. We will all gain from a strong and competitive financial services sector that helps to meet important needs like small business financing, clean energy infrastructure and investment for retirement. And we will also gain from a strengthened financial services sector throughout the world."

Sir Win Bischoff said:

"International financial services are not a zero sum game: progress in one country need not come at the expense of another. It is strongly in the UK's interest to build on its existing relationships with capital markets around the world, especially in the emerging economies. The timing is right as the financial landscape is changing around the world and we must make sure that world-class centres like London participate and benefit from this trend."

Spelman condemns loss of £200 million of local taxpayers' money

Caroline Spelman, the Shadow Communities and Local Government Secretary, has stressed it is “unacceptable” that local taxpayers will lose £200 million as a result of the Icelandic banking meltdown.

She warned that the loss will “ultimately feed through to higher council tax or less investment in frontline services.”

And she condemned the series of regulatory failures that led to town halls investing almost £1 billion of local taxpayers’ money in Icelandic banks:

• Ministers and the Financial Services Authority knew the risks but said nothing - the FSA knew about the risks in Icelandic banks at the beginning of 2008 and informed both the Treasury and the Bank of England, but failed to inform the Department for Communities and Local Government and the Audit Commission
• Audit Commission inaction - the Audit Commission has admitted that it did not consider it their job to provide any advice to local authorities on investments and that they failed to liaise with the Financial Services Authority
• Prescott ’s town hall guidance - The Government’s guidance to local authorities (originally issued in 2004 by John Prescott) relies overly on credit ratings, rather than also obtaining professional treasury management advice

Caroline said, “It is a scandal that the Financial Services Authority and the Treasury knew that Icelandic banks were risky, but sat on their hands and kept quiet. Labour Ministers must take personal responsibility for this public policy mistake, given they created a flawed regulatory system and said nothing.”