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FSA set to escape the axe

The FSA is expected to survive the Conservative-LibDem Government’s banking regulation plans.

New Chancellor George Osborne has been forced to alter his plans to scrap the FSA and hand supervisory powers to the Bank of England.

Under the original plans, the Conservatives intended to set up a consumer protection agency in the FSA’s place but the coalition agreement only says: “The parties agree that the regulatory system needs reform to avoid a repeat of Labour’s financial crisis. We agree to bring forward proposals to give the Bank of England control of macroprudential regulation and oversight of micro-prudential regulation.”

The coalition also agreed to set up an independent commission to look at separating retail and investment banking “in a sustainable way”, which will report back within one year.

The LibDems had called for a clear split between retail and investment banking.

Lansons director of regulatory consulting Richard Hobbs says: “It seems that Vince Cable’s view prevailed over George Osborne’s and the FSA is safe in this Government’s hands. Therefore, the issue is how long this Parliament will last, which I think will be some considerable time.”

“What tends to happen with proposals like this is that if they do not find expression immediately after an election, they tend to die and life moves on. I think it highly unlikely that the proposal would be resurrected if the Tories were to win an outright majority at an election in a few years time. The proposal to break up the FSA was a highly politically motivated attempt to attack Gordon Brown and was part of an election strategy which is now out of the way.”

CMS Cameron McKenna partner Paul Edmondson says the City will welcome this change of tack.

He says: “There will be cheers in the City if, as now seems likely, FSA remains the single regulator for banks and insurers. The fact the Bank of England may be given greater authority over FSA should be welcomed too. This would be a sensible way to divide up the different responsibilities without firms having to deal with several regulators, as the Tories once favoured.”

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