Govt banking reforms will need ‘tough’ regulators

London UK Parliament 480

Experts are warning the success of the Government’s banking reforms will rest on “tough” regulators who are not “frightened” to take on the banks.

The Government unveiled its banking reform bill this week, setting out plans to ringfence the retail arms of UK banks from their investment divisions as recommended by Sir John Vickers’ Independent Commission on Banking.

It also partially adopted a recommendation by the Parliamentary Commission on Banking Standards which called for the Treasury to have the power to force separation of all banks if the sector does not comply with the new rules. Instead, it gave the Bank of England the reserve power to separate individual banks if they “game the system”.

Former FSA head of training and competency and Ethical Foundation founder David Jackman says: “There needs to be an effective deterrent as banks will always find a way of gaming regulations, which was my experience at the FSA.

“The success of these reforms will mainly be down to the attitude of the two regulators. We need the PRA and FCA to not be frightened of the banks.”

Social Market Foundation director Ian Mulheirn says: “The biggest concern is how the reserve power will be triggered. People forget the boom-time mentality and one of my concerns is that this new power is based on the omniscient regulators and experts. There needs to be something of a rule-based system around it.”

Lansons Communications director Richard Hobbs said: “The power is like a nuclear warhead, you never want to use it so regulators will need to face people down and be tough.”

Shadow Treasury financial secretary Chris Leslie attacked the reforms as “half-hearted”, saying banks will be “rubbing their hands with glee” at the new limited powers.