George Osborne unveils new Financial Services Bill
Saturday, 28 January 2012 10:04
The Chancellor, George Osborne presented the new Financial Services Bill that will change the way banks and other financial institutions are regulated in the UK and aims to create a clear structure of who is in charge in the event of another credit crunch or financial crisis.
The changes will put the Bank of England at the centre of the regulatory structure and make its governor one of the most powerful central bankers in the world. It would also allow the Chancellor to take control and veto decisions made by the Bank of England in the event of another financial crisis.
The previous regulatory structure was made up of the Financial Services Authority (FSA), the treasury and the Bank of England. This has been criticised for not having clear lines of accountability and the FSA was also criticized for its role in the financial crisis. The FSA will be abolished under the new proposals with the bank of England taking over some of its responsibilities.
The Financial Services Bill will see the creation of three new bodies to regulate financial services. The Financial Policy Committee (FPC) will work within the Bank of England and will have overall responsibility for regulation and monitoring risks to the financial sector to the economy. It will oversee and instruct two new financial watchdogs.
These are the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The PRA will supervise the safety and soundness of individual financial firms, whilst the FCA will focus on consumer protection and ensuring employees who work in financial services comply with the rules.
Adam Phillips, Chair of the Financial Services Consumer Panel, welcomed the creation of the FCA. He said: "The Consumer Panel welcomes the intention to transfer responsibility for consumer credit regulation to the FCA. When this happens, this will create a single regulator responsible for delivering effective consumer protection, whether consumers are saving or borrowing money.”
Announcing the new Financial Services Bill in a speech at the World Economic Forum (WEF) in Davos, George Osborne said: "The Financial Services Bill will overhaul the failed system of financial regulation which allowed such dangerous levels of leverage to emerge.
"Everyone was so focused on ticking off a regulatory checklist that nobody felt it was their responsibility to use their judgment.
"We are putting in place clear lines of accountability, and restoring that crucial element of judgment."
Mr Osborne said that the lack of clarity over who was accountable for what created the conditions whereby the Royal Bank of Scotland (RBS) was able to complete its takeover of Dutch bank ABN Amro which led to RBS requiring a £45 billion bailout from the UK taxpayer.
British Bankers' Association Chief Executive, Angela Knight said: “Good financial supervision is not just about structure - decisions taken made by bankers and regulators matter too.
“Today's publication of the Financial Services Bill is an important milestone in rebuilding trust in the financial services sector. There are still many issues to work though and we will continue working with government so the new structures, as they emerge, she added."
The new system will mean that the Bank of England will be in charge of regulation in “normal” times but the Chancellor will have the power to take over in a crisis if taxpayers’ money is at risk.
Sarah Brooks, Director of Financial Services at Consumer Focus said: “This is a once in a generation opportunity to reform our financial regulation and it is vital we get it right. Consumers have been losing out for too long.
“Particularly welcome steps include early interventions on banning products. This should help stop many of the issues which have been endemic in this market in recent years.”
The Financial Services Bill must be passed by parliament before it becomes law.
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