Group - 07

Sabiha Farzana Moonmoon ID. 16089

K. M. Wasiuzzaman ID. 16005
Sushmita Saha ID. 16032
Nandita Saha ID. 16060
Tahmina Akter ID. 16083
 Category: restricted universal
 Made up of: big 4
1. UK banks
2. HSBC
3. The Royal Bank of Scotland group
4. HBOS
 Alllowed building societies to convert to
bank Plc status
 Two-third of shareholders had to approve
the conversion
 To be supervised by the bank of England
 Protected from hostile takeover for five
years
 90% of asset must be residential
mortgages
 Wholesale money+deposit could not
exceed 20% liability (sub-sequentlly
40%, then 50%)
 Allow mutual to undertake all forms of
banking unless explicitly prohibited
 Any converted building society which
attempts a hostile takeover of another
building society losses its own 5 years
protection from takeover
 75% of assets must be secured by
residential property
 50% of funding has to come from
shareholder deposit
 Finance houses or non bank credit
institutions:
1. Borrow from banks, provide
installments credit to personal and
commercial sectors
2. Involved in leasing and factoring
 Friendly societies:
1. First defined in law in 1973
2. Members make contributions
3. Regulated by FSA
 Investment institution:
1. Pension funds
2. Insurance firms
3. Unit trusts
4. Investment trusts
 In1986, London city underwent Big Bang by
reforming followings:

 The Financial Service Act (1986)

 Competition and Credit control (1972)
 The Special Supplementary Deposit Scheme.
 End of exchange controls on sterling (1979)
 The Buildings Societies Act (1979; amended
1987)
 TheCollapse of an informal but effective
building society interest rate cartel(1984)

 Financial Services Act(1986)

 The 1998 Banking Act

 TheFinancial Services And Markets

Act(2000)
 To Change the structure of the financial
sector
 To change greater competition
 To expand in new areas
 To maintain reputation for quality
 To introduce new financial regulation
 Govt. putpressure on the London Stock
Exchange
 Raised ownership in (LSE) by non-members
from 10% to 29.9%
 Introduced Dual Capacity
 Banks entered into stockbroking business
 Traditional Merchants Banks started acting as
Investment Bank
 Commercial Banks purchased Investment Bank
 Protection for INVESTOR was the main
objective

 Introduced SELF-REGULATION

A two tier system was introduced:

SRO(Lower Tier)
SIB (Upper Tier)
 The Bank of England (For Banks)

 TheBuildings Societies Commission (For

Building Societies)

 TheDepartment of Trade and Industry(For

insurance regulation )
 Futures dealers
 Securities dealers
 Investment managers
 Personal investment
 Life insurance
 Unit trusts
 SelfRegulatory bodies are become the best
judge of the standards and rules of conduct by
more information and knowledge rather than
state regulations.

 SROs system would prevent REGULATORY

FORBEARANCE(Regulatory Capture) from
arising.

 In
this act, SIB have statutory power given by
British System
 Hiring
individuals with extensive experience
though they pay low salary
• There was no specific banking laws in the UK
prior to this Act.
• This Act recognized two classes of financial
institution :
1. Banks
2. Licensed deposit institutions
• The Bank of England decided on whether a firm
was given bank status.
• A ‘Depositors Protection Fund’ was established
under the 1979 Banking Act.
• All recognized banks contribute to the DPF.
 Auditorswere given greater access to official
information.
 Any investors with more than 5% of a bank’s
shares must declare themselves.
 Thepurchase of more than 15% of a UK bank
by a foreign bank may be blocked by the
authorities.
A board of bank supervision was established to
assist the Bank of England in its bank
supervisory role.
 Transferred the Bank of England’s supervisory and
related powers to the newly created ‘Financial
Service Authority’.
 The FSA took over responsibility for the
authorization and the prudential regulation of all
financial institutions.
 Italso took over responsibility for the supervision
of clearing and settlements and financial markets.
 This Act also transferred responsibility for the
‘Deposit Protection Board’ to the FSA.
 Passed
on 12 June, 2000, after a record 2000
amendments.

 Establishedthe ‘Financial Service Authority’ as

the sole regulator of all UK financial institutions.
 A one stop integrated regulator of
financial firms.
The FSA is bound to –
• Maintain confidence in the UK financial system.
• Educate the public – with special reference to the
risks associated with different forms of investing.
• Protect consumers but encourage them to take
responsibility for their own financial decisions.
• Reduce financial crime.
• Be cost effective by using cost benefit analysis.
FSA rules focus on -
 Toensure firms have the right systems and
controls.

 Torequire especially senior management to be

responsible for complying with FSA rules.

 Tomake staff aware of the FSA’s view of what

constitutes desirable behavior.
• Handbook of rules consists of long volumes.
• Deal with prudential concerns of all financial
firms.
• Regulation of bank is being driven by the EU.
• Rules governing capital and liquidity adequacy
are largely determined by the EU and Basel
agreements.
• As a number of EU , the UK adopt the IASB
accounting standards by 2005.
• There is no restriction to impose new rule.
 Hasbeen adopted by the
telecommunications and utilities sector.

 Ideawas to have the real price of these

services fall overtime.

 Allow to increase prices by the rate of

inflation.
 Knownas RTO indicating that they
consider the financial sector where risk
management must take priority.

 According to the FSA , RTO is crucial for

its statutory responsibility for
maintaining the financial sector.

 Computing a score for each firm

supervised by FSA.
 Impact score= [ impact of the problem] *
[probability of the problem arising]

 If the impact score is low , the firm is

likely to be monitored by FSA.
 If the impact score is high, the firm
strictly monitored by FSA like as
continuous meeting and regular visit.
• The firm could be the target of panics
about the quality of the bank.

• For the average consumer, valuation is

difficult for product such as insurance
and endowment mortgages.

• The activity of a firm might encourage a

financial crime
 Setting a criteria for licensing banks.
 “Fit and proper” are applied in key position.
 Setting an individual capital ratio based on
its risk profile.
 Developing a new approach to monitor
bank’s liquidity.
 UK banks must comply with the EU’s large
exposures directive.
 Each bank must be externally audited.
The Bank of England and Financial Stability:

 A central Bank always acted as the lender of last resort.

 To stabilize financial market there is a statutory obligation of
FSA & MOU.

 Here the MOU (Memorandum of Understanding) is 1998 Bank

of England Act which is between the treasury, the FSA & the
Bank of England.
 These organizations are jointly responsible for financial
stability.
 MOU & FSA shared information successfully and fulfills its
obligation to supply the Bank with all the information. And
MOU was praised by IMF report in 2003.
A single regulatory body:

 UK introduced a single regulator relatively.

 But, it promotes some question; there are two issues, as-
• First one is the extent to which the Central Bank should be
involved in the regulation of Banks.
• Second, whether a single body should be given responsibility for
regulation of financial sector.
 On behalf of the two issues, a first financial conglomerate
favors a single regulator, because financial regulators not only
costly for conglomerates but it may leave gaps.
 The main case for a single regulator is that greater efficiency is
achieved because of economies of scale and scope.
Prior to the creation of the FSA:

 A lead regulator was often assigned to the financial firms

engaging in multiple financial activities.
 These procedure did not prevent regulatory failures such as-
 Mis-selling of pension
 The Maxwell theft of pension funds
 A spectacular case of fraud at Baring.