Labour has called for a raft of changes to the Government’s financial regulation plans before it will back the proposals, including a greater focus on consumer protection and financial education.
The reforms, which will introduce the Financial Conduct Authority and Prudential Regulation Authority, cleared their first Parliamentary hurdle last night, but Labour says it wants to see changes before it supports the Financial Services Bill becoming law.
The bill will now go to the committee stage where amendments will be considered after which MPs will have to vote on the bill again before it goes to the House of Lords. After being asked by the Chancellor if his party would support the bill, George Osborne’s shadow, Ed Balls said Labour would only do so if significant changes are made in committee stage.
Despite being known as the ’twin peaks’ model, Balls said the new regulatory system was in fact a “quartet”, referring to the FCA, PRA, the Bank of England with its Financial Policy Committee and Monetary Policy Committee and the Treasury.
He said: “We risk delivering a more complex and less transparent system that is harder for the Chancellor and for Parliament to navigate and understand than the current arrangements. Several ofthose substantial misgivings have been echoed in recent weeks and days by the Treasury select committee and by many City, business and consumer groups.
“The responsibilities are confused, there is insufficient accountability in the new, more cumbersome system, there is insufficient focus on consumer protection, financial education and exclusion, and, as the CBI has highlighted, there is no objective for the Financial Policy Committee proactively to support growth and employment.”
Shadow Treasury financial secretary Chris Leslie said: “Some serious amendments are needed, and we want stronger regulation that is fit for purpose, has sufficient checks and balances, delivers financial stability, promotes employment and growth, protects consumers and safeguards the interest of the taxpayer. The whole country wants to see banks that serve the best interests of the wider economy and society, and we hope that Ministers will listen and amend their bill accordingly.”
Balls, who was city minister in the run-up to the 2008-09 crash and chief architect of the current tri-partite system, warned the Chancellor that changing the structure would not make the UK immune to future crises.
He said: “This was not a peculiarly British crisis, it was a global crisis. It hit countries with tripartite systems of regulation, quartet systems, twin peaks, more powerful central banks, less powerful central banks and statutory and non-statutory regulators alike. It was not a failure of regulatory structure, but a collective global failure to see the risks inherent in the structure of the global financial services industry.”
Osborne admitted the bill was not the “complete answer to what went so spectacularly wrong”, but said it was a necessary reform which should be looked at alongside the Basel capital requirements, the ringfencing of retail banks and work by global bodies such as the G20 to coordinate financial regulation.
He said: “It is not by itself a sufficient response to the mistakes of the past, but it is absolutely necessary.”
Membership of the committee which will scrutinise the bill is expected to be announced this week.