UK’s New Banking Act now in place

| February 22, 2009 | 0 Comments

The UK’s new Banking Act, which will allow authorities to intervene and rescue troubled financial institutions and safeguard investors, is now in force.

The act, which came into effect on Saturday 21 February, means the Tripartite authorities (the Bank of England, Financial Services Authority and Treasury) will provide greater protection for investors as they can receive compensation within seven days should a bank collapse.

Currently, compensation for savers with failed banks can take many weeks.

In addition, transferring customers from a failed bank to another should also now be easier.

The act’s most sweeping powers involve the setting up of a Special Resolution Regime if a deposit-taker looks likely to collapse, making it much easier for regulators to step in and either temporarily take over the bank, sell it on or put it into administration.

Peter Thal-Larsen, banking editor of the Financial Times, told the BBC’s Working Lunch programme “the act will basically allow financial authorities to take early action to move savers’ deposits from a failing bank before tackling other problems.

The idea is that, if there is a bank that gets into trouble, to insulate it and make the wider impact of that less, but I don’t think they can actually stop banks from getting into trouble in the future,” said Mr Thal-Larsen.

The Banking Act has been welcomed by Colin Melvin, chief executive of Hermes Equity Ownership Services, who told the BBC “it will bring to the regulatory framework, including the strengthening of the Bank of England“.

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