United Kingdom banking law
United Kingdom banking law refers to
History
The
The Bank of England could, simply by being the biggest financial institution, influence interest rates that other banks charged to businesses and consumers by altering its interest rate for the banks' bank accounts.
- Macmillan Committee (1929)
Central bank
UK banking has two main parts.
Central bank governance
Under the
Interest rates
The
Private bank oversight
- Bank of England Act 1998
- Three Rivers DC v Bank of England
- Bank of Credit and Commerce International
Private bank governance
Outside the central bank, banks are mostly run as profit-making corporations, without meaningful representation for customers. This means, the standard rules in the Companies Act 2006 apply.
Directors are usually appointed by existing directors in the
Concerns about "short-termism" have been written about by the
Employee rights
Since the Credit Institutions Directive 2013,[26] there are some added governance requirements beyond the general framework: for example, duties of directors must be clearly defined, and there should be a policy on board diversity to ensure gender and ethnic balance. If the UK had employee representation on boards, there would also be a requirement for at least one employee to sit on the remuneration committee, but this step has not yet been taken. The Credit Institutions Directive 2013 (2013/36/EU article 95 states "If employee representation... is provided for by national law, the remuneration committee shall include one or more employee representatives."
Licensing and passport
There is some public oversight through the bank licensing system.
Customer rights
While banks perform an essential economic function, supported by public institutions, the rights of bank customers have generally been limited to contract.
Customer accounts
In general terms and conditions, customers receive very limited protection. The Consumer Credit Act 1974 sections 140A to 140D prohibit unfair credit relationships, including extortionate interest rates. The Consumer Rights Act 2015 sections 62 to 65 prohibit terms that create contrary to good faith, create a significant imbalance, but the courts have not yet used these rules in a meaningful way for consumers.[29] Most importantly, since Foley v Hill the courts have held customers who deposit money in a bank account lose any rights of property by default: they apparently have only contractual claims in debt for the money to be repaid.[30] If customers did have property rights in their deposits, they would be able to claim their money back upon a bank's insolvency, trace the money if it had been wrongly paid away, and (subject to agreement) claim profits made on the money. However, the courts have denied that bank customers have property rights.[31] The same position has generally spread in banking practice globally, and Parliament has not yet taken the opportunity to ensure banks offer accounts where customer money is protected as property.[32]
Deposit protection
Because insolvent banks do not enable customers to recover their money as a property right (only contract), governments have found it necessary to publicly guarantee depositors' savings. This follows the model, started in the Great Depression,[33] the US set up the Federal Deposit Insurance Corporation, to prevent bank runs. In 2017, the UK guaranteed deposits up to £85,000,[34] mirroring an EU wide minimum guarantee of €100,000.[35]
Markets
Insolvency
Because of the knock-on consequences of any bank failure, because bank debts are locked into a network of international finance, government has found it practically necessary to prevent banks going insolvent. This system began with the Banking (Special Provisions) Act 2008, emergency legislation for the nationalisation of Northern Rock, which was recast the following year. Under the Banking Act 2009 if a bank is going into insolvency, the government may (and usually will if "the stability of the financial systems" is at stake) pursue one of three "stabilisation options".[36] The Bank of England will either try to ensure the failed bank is sold onto another private sector purchaser, set up a subsidiary company to run the failing bank's assets (a "bridge-bank"), or for the UK Treasury to directly take shares in "temporary public ownership". This will wipe out the shareholders, but will keep creditors' claims intact.
All other standard rules of the
Capital requirements
One fashionable method to prevent bank insolvencies, following the "
Competition law
See also
- UK company law
- UK enterprise law
- Bank regulation in the United States
- Glass–Steagall Act of 1933
- Depository Institutions Deregulation and Monetary Control Act of 1980
Notes
- ^ 5 & 6 Will & Mar c 20.
- ^ EP Ellinger, E Lomnicka and CVM Hare, Ellinger’s Modern Banking Law (5th edn 2011) ch 2, 30
- ^ So, if the Bank of England raised its interest rate for Barings Bank's account with it, Barings would probably try to raise its interest rates for customers with Barings Bank accounts (unless competition was very tight, in which case its profits would have to be reduced).
- Overend, Gurney and Co
- ^ See EP Ellinger, E Lomnicka and CVM Hare, Ellinger's Modern Law of Banking (2011) chs 1-2 and 5
- equity capitalfinance, where an investor buys shares, invariably with voting rights, in a company. Debt finance usually keeps the borrower in control of their business, subject to any restrictive covenants and the need to repay the debt.
- CJEU: ECB Statute arts 10-11.
- ^ See 'Court of Directors' on bankofengland.co.uk
- BEA 1998s 1A allows the Treasury to add directors, or reduce the number of directors, after consultation, with some limitations.
- BEA 1998Sch 1, paras 1-2
- BEA 1998Sch 1, paras 7-8
- BEA 1998Sch 1, paras 14
- .
- ^ R Cranston, Principles of Banking Law (2002) 121-122
- outright monetary transactionsto buy Greek government debt on secondary markets (to support the euro) was lawful.
- ^ Cranston (2002) 121, ‘This will typically, in turn, produce a change in the base rates of the banks.’
- BEA 1946s 4(3). No order has been issued, but banks generally comply with the Bank of England's suggested reserve ratios. Cranston (2002) 121, ‘The size of the reserves clearly determines the volume of money in circulation and the extent to which a bank can itself extend credit to its customers.’
- ^ See Monetary Control (1980) Cmnd 7858.
- BEA 1998s 19
- UK Corporate Governance Code 2016section B
- ^ Companies Act 2006 ss 168-9
- UK Corporate Governance Code 2016section D
- UK Corporate Governance Code 2016, section E
- ^ See E McGaughey, 'Does corporate governance exclude the ultimate investor?' (2016) Journal of Corporate Law Studies
- ^ Companies Act 2006 ss 170-77, 260-263
- ^ 2013/36/EU arts 88-96
- FSMA 2000 ss 19-23 and 418-9, the Banking Act 1979introduced the formal authorisation requirements.
- Credit Institutions Directive2013/36/EU arts 8-14
- ^ See Office of Fair Trading v Abbey National plc [2009] UKSC 6 and Director General of Fair Trading v First National Bank plc [2001] UKHL 52
- ^ (1848) 2 HLC 28
- ^ Vincent v Trustee Savings Banks Central Board [1986] 1 WLR 1077, denying that the Trustee Savings Bank customers were, despite the name of the bank, in any trustee-beneficiary relation, either at common law or under statute. The customers, apparently, only had contractual rights.
- ^ See the Safety Deposit Current Accounts Bill 2008 cls 1-2, proposing a proprietary saving account option.
- Banking Act of 1933
- ^ Financial Services and Markets Act 2000 ss 214-215
- ^ See the Deposit Guarantee Directive 2014/49/EU
- ^ See Banking Act 2009 ss 1, 7-13
- ^ (EU) No 575/2013, arts 114-134
References
- EP Ellinger, E Lomnicka and CVM Hare, Ellinger's Modern Law of Banking (2011)
- E McGaughey, Principles of Enterprise Law: the Economic Constitution and Human Rights (Cambridge UP 2022) ch 10