Britain's new Chancellor George Osborne has announced the biggest shake-up of Britain's regulatory landscape in 13 years as he pledged to give the Bank of England responsibility for financial supervision.
In his first annual Mansion House speech to the City of London's financial elite, Mr Osborne said the current tripartite regime where oversight is shared between the Treasury, BoE and Financial Services Authority will be abolished.
"The Financial Services Authority will cease to exist in its current form," Mr Osborne told the bankers. "We will create a new prudential regulator, which will operate as a subsidiary of the Bank of England."
FSA chief executive Hector Sants, who was due to leave in the summer, will stay on during the transition which could take up to two years. He will become the third deputy governor of the BoE and be the chief executive of the new regulator.
Mr Osborne also confirmed he would create a new Financial Policy Committee within the BoE, which would be chaired by the governor.
Mervyn King emerged as the big winner from the chancellor’s shakeup of supervision that will do away with the tripartite system of regulation introduced in 1997 and abolish the UK Financial Services Authority. George Osborne gave him sweeping powers to curb City excesses and prevent another financial crash.
Despite facing his own critics during the financial crisis of the past three years, King said last night the Bank was determined to meet its inflation target and to construct a framework for financial stability to match that for monetary stability.
“We need both,” Mr King said. “As we have seen, one without the other is not enough. Just as the role of a central bank in monetary policy is to take the punch bowl away just as the party gets going, its role in financial stability should be to turn down the music when the dancing gets a little too wild.”
Supervision of individual banks would be carried out by the prudential regulatory authority, a legally separate but subsidiary part of the bank that will replace the FSA in 2012.
Mr King will chair the authority’s board, but it will be run on a day-to-day basis by Hector Sants, the current chief executive of the FSA. The current chairman of the FSA, Lord Turner, was being seen last night as a possible successor to King when his second five-year term as governor ends in 2013.
Osborne said last night: “At the heart of the crisis was a rapid and unsustainable increase in debt that our macroeconomic and regulatory system utterly failed to identify let alone prevent. No one was controlling levels of debt, and when the crunch came no one knew who was in charge.”
The government will also establish, what Mr Osborne called a “powerful new Consumer Protection and Markets Authority”, which will regulate the conduct of every firm authorised to provide services to the public. The body will “ensure the integrity of the UK’s financial markets in order to preserve their reputation for transparency and efficiency as well as the UK’s reputation as one of the world’s leading global financial centres,” the chancellor said.
Mr Osborne told City bankers in the annual Mansion House speech he was sticking to plans outlined in the Conservative manifesto, despite reservations from the Liberal Democrat members of the coalition government.
Rejecting his predecessor Alistair Darling’s charge that he was creating a “dog’s breakfast”, Mr Osborne used the speech to announce the creation of a financial policy committee at the bank, chaired by Mr King, to provide a “big picture” assessment of the activities of the City.
Mr Osborne also named the five members of a banking commission which will report by September next year on whether Britain’s big banks should be split up.
REUTERS