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Tories sharpen axe for FSA

The Conservatives have set out their plans for the abolition of the FSA, with prudential powers to be passed to the Bank of England and a new body to regulate advisers.

In a financial reform policy white paper, released on Monday, Shadow Chancellor George Osborne plans to abolish what he calls a “failed tripartite system of regulation” and give the Bank of England responsibility for maintaining financial stability.

IFAs and mortgage brokers would be regulated by a new body called the Consumer Protection Agency, which would act as a consumer champion, with powers to name and shame firms for poor practice. The CPA would look at pricing and product suitability as well as competition in financial services and products.

Regulation of consumer credit would be transferred from the Office of Fair Trading to the CPA.

The Tories would consult on what regulatory authority should take on the FSA’s other responsibilities, including markets and securities regulation, approved persons’ licensing and listing authority responsibilities.

A new Financial Policy Committee would be formed as part of the Bank of England to monitor system risks, oversee macro-economic policy and run the regime for failed banks. A Financial Regulation Division of the Bank of England would regulate bigger institutions such as banks, building societies and insurers. A financial crime regulator could be created which would include the enforcement arm of the FSA.

The Tories admit the proposals would see industry levies rise for firms due to a need for higher-calibre regulators.

Aifa director general Chris Cummings says: “We must be careful that any proposals must increase consumer access to good, independent financial advice. The Government and regulator must increase consumer access to trusted sources of advice and not restrict it.”

Labour would:

  • Keep the tripartite system and form a Council for Financial Stability, bringing together the FSA, Bank of England and Treasury

  • Set up an independent consumer education and information body funded by FSA-regulated firms

  • Impose tougher prudential regulation and stronger capital requirements on large and complex financial organisations

  • Ensure banks produce resolution plans setting out a plan of action for if they fail

  • Expand the role of the FSCS and make it pre-funded

    Conservatives would:

  • Scrap the tripartite system and give the Bank of England responsibility for maintaining financial stability and prudential regulation of banks, building societies and insurance companies

  • Scrap the FSA and set up a Consumer Protection Agency merging the roles of the FSA and the Office of Fair Trading

  • Empower the BoE to impose much higher capital requirements on high-risk activities and risky bonus structures

  • Give a Treasury minister responsibility for European financial regulation

  • The FSCS could become part of the Bank of England

    Liberal Democrats would:

  • Create a Financial Stability Committee led and chaired by the governor of the Bank of England, with representation from the FSA and the BoE

  • Leave the FSA as a unitary financial regulator

  • Assess banks’ remuneration policies and fine those that have risky ones that may affect long-term stability

  • Force highly paid staff, perhaps over £200,000, to publish details of their remuneration

  • Split up the big banks, including RBS and Lloyds before they are returned to private ownership
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