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Articles contributed by Fulbright & Jaworski International LLP
The current recession has brought about significant changes in the UK financial services sector, ranging from a hardening of the public’s attitude towards financial institutions to the partial nationalisation of two of the largest banks in the world (at a cost of billions of pounds). The UK’s first coalition government for 70 years is making its mark on financial services regulation by proposing radical reforms to the current regulatory structure. This article summarises the proposed reforms, the reasons behind them and their likely effect.
Credit Rating Agencies (CRAs) have recently been on the receiving end of increasingly close scrutiny by regulators as decision-makers on both sides of the Atlantic have asked serious questions of the role and structure of the established CRAs. The ongoing US Senate and New York Attorney General investigations into the financial crisis, together with recently enacted EU legislation to regulate CRAs more closely, mark significant steps towards reform in the credit ratings sector. Banks and financial institutions will be well-served to pay close attention.
The trend for co-operation between international financial regulators has become a feature of the regulatory environment over recent years. On 24 February 2010, in a boost for the Financial Services Authority (FSA) in its approach to dealing with requests for assistance from overseas regulators, the Court of Appeal allowed an appeal and found in favour of the FSA in connection with the exercise of its powers in aid of US Securities and Exchange Commission (SEC) proceedings.1 Businesses operating in the banking and finance sector, particularly on an international basis, should pay close attention to this decision.
The recent decision in Enviroco Ltd v Farstad Supply A/S  has prompted debate and consideration of how corporate structure has, and should be, defined going forward, and the potential impact this may have on group companies’ financial and commercial dealings.
Sir David Walker published his final review of corporate governance in banks and other financial institutions on 26 November 2009 (the Review). This followed a period of consultation based on initial draft recommendations that were announced in July 2009.
‘Even these metallic problems have their melodramatic side.’ (Oscar Wilde, The Importance of Being Earnest (1895, in premier))
As a result of the banking crisis of 2008/09 the question of how the industry can guard against future failures has attracted substantial comment from the press, experts and regulators. One area of focus is the need for greater transparency in the industry, particularly with regard to remuneration in the sector, and how boards of banks and financial institutions might improve their corporate governance procedures to limit the chances of a repeat of the credit crunch.
Recent cases have highlighted the potential advantages for regulated businesses (firms) in adopting a co-operative approach when dealing with regulators and, in particular, the Financial Services Authority (FSA).1 In this regard, firms frequently retain independent lawyers and/or professional services firms to investigate worrisome conduct and to produce a report in anticipation of regulatory action.
Hector Sants, chief executive of the Financial Services Authority (FSA), recently put his cards on the table:
‘There is a view that people are not frightened of the FSA. I can assure you that this is a view that I am determined to correct. People should be very frightened of the FSA.’
In the prevailing economic climate, banks and financial institutions are likely to face an increasing number of claims. These can be a useful opportunity for banks to reconsider and review their existing documentation and risk management policies.