BCCI's regulatory status in the United Kingdom changed significantly in 1987, when Parliament introduced a new banking supervision regime.
Under the earlier Banking Act 1979, UK deposit-taking institutions had been divided into two categories: recognised banks and licensed deposit-takers. BCCI had applied for recognised-bank status but the Bank of England declined to grant it that higher classification. Instead, BCCI was authorised in 1980 as a licensed deposit-taker.
The distinction was significant. The Bank of England's decision not to recognise BCCI as a bank reflected concerns about its unusual international structure and, in particular, the difficulty of establishing effective consolidated supervision over a banking group operating through different companies and jurisdictions. Lord Justice Bingham later examined this decision closely in his inquiry into BCCI's supervision.
The position changed with the Banking Act 1987. The previous distinction between recognised banks and licensed deposit-takers was abolished and replaced by a single category of authorised institution. BCCI therefore continued operating in the United Kingdom under the new authorisation regime rather than remaining in a separate licensed deposit-taker category.
This occurred against an important background. Only the previous year, the Bank of England had learned of the substantial losses in BCCI's Central Treasury and had begun to question more closely the Bank's management, structure and supervisory arrangements.
The decision nevertheless allowed BCCI to continue accepting deposits and conducting banking business in the United Kingdom under the strengthened 1987 regulatory framework.
The importance of the 1987 authorisation became clearer after BCCI's closure. In subsequent parliamentary debates and in the Bingham Report, questions were raised about whether the supervisory concerns already known to the Bank of England - including the Treasury losses and weaknesses in consolidated supervision - should have led to stronger action at that stage.
The episode is therefore important not because BCCI was given a special regulatory status in 1987, but because the new Banking Act provided an opportunity for its position to be reconsidered at a time when significant supervisory concerns had already emerged.