27.This section amends section 2 of FSMA to give the FSA an additional regulatory objective (or ‘general duty’) concerning financial stability. It inserts a new section 3A in FSMA, which provides that the objective is to contribute to the protection and enhancement of the stability of the UK financial system. This is similar to the financial stability objective of the Bank of England under section 2A of the Bank of England Act 1998 (inserted by section 238 of the Banking Act 2009).
28.New section 3A of FSMA requires the FSA, in considering this objective, to have regard to the economic and fiscal consequences of instability and also to any effects on economic growth of regulatory actions taken for stability reasons. In addition the FSA, in considering this objective, must have regard to the possible impact on UK financial stability of events and circumstances outside the UK. The section also requires the FSA to develop and keep under review a strategy concerning this objective, in consultation with the Treasury.
29.Schedule 2 makes consequential amendments to FSMA. Paragraph 2 of that Schedule substitutes the term “the UK financial system” for “the financial system” in section 3(1) of FSMA (which deals with the “market confidence” objective) and provides a definition of that term in section 3(2) of FSMA. Similar substitutions are made by paragraphs 3 and 6(2) to sections 4 and 14 of FSMA respectively. Paragraph 31 amends section 417 of FSMA (definitions) to clarify that the definition of “UK financial system” in section 3(2) of FSMA applies for the purposes of that Act.