Corporate Governance and Development

Corporate Governance and Development

Reform, Financial Systems and Legal Frameworks

The CRC Series on Competition, Regulation and Development

Edited by Thankom Gopinath Arun and John Turner

This book analyses the complex relationship between corporate governance and economic development by focusing on the reform of corporate governance, the role of the legal system, and the interconnections with the financial system.

Chapter 11: Legal Aspects of UK Bank Corporate Governance

Dalvinder Singh

Subjects: business and management, corporate governance, development studies, development economics, law and development, economics and finance, corporate governance, development economics, law - academic, law and development

Extract

Dalvinder Singh INTRODUCTION A complex nexus of corporate law, public regulation and supervision resides over the activities banks are allowed to undertake, such as the business of deposit taking. The traditional focus of corporate law is essentially the relationship between the corporation and its directors and shareholders. Indeed, the corporate legal framework as set out in s. 172 of the Companies Act 2006 places a legal obligation on directors to maximize shareholder wealth, albeit presupposing an ‘enlightened shareholder’ appreciative of the interests of other corporate stakeholders. However, the interests of others are only considered, if at all, to a limited extent; in the case of creditors, for instance, only if problems arise. The mechanisms to protect depositor interests involve compliance with statutory provisions and rules put in place by the regulator responsible for overseeing the business of banking to protect financial stability, market confidence, and depositor and investor interests. These statutory requirements can transcend the business operations of banks over non-bank business, and also transnationally through consolidated supervision. The regulatory framework places a responsibility on the firm, its directors and its senior management, and indeed to some extent on the shareholder controllers, to be mindful of the interests of depositors (as unsecured creditors) both legally and morally over and above the expectations of the traditional corporate governance paradigm. This chapter will focus on the UK Financial Services Authority (FSA), which is responsible for the regulation and supervision of banking, investment and insurance businesses as set out in the Financial Services...

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