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Tory review floats idea of disbanding the FSA

The FSA may need to be replaced by two separate bodies responsible for micro-prudential issues and conduct of business, with the Bank of England to take on macro-prudential issues, according to Sir James Sassoon.

In his review of the tripartite regime for Shadow Chancellor George Osborne, Sassoon says at the very least the FSA should be reorganised to put prudential regulation at the heart of its organisation. He says the head of prudential regulation should be an FSA board director.

Formerly the Treasury’s special representative for promotion of the City, Sassoon, who resigned from the post last September, also recommends that other FSA policy responsibilities should be removed such as tackling financial crime.

Sassoon says the Bank of England should take over macro-prudential issues from the regulator to ensure the financial system “is not again allowed to become dangerously over-leveraged”.

In today’s Financial Times, he says: “Even with more effective macro and micro-prudential regulators, there is still a question of whether we can be certain nothing will fall through the gap.

“We should look at giving the Bank of England powers to take direct regulatory action on individual companies if it believed the micro-prudential regulator was failing. Some argue we should fold micro-prudential regulation back into the Bank: this also merits consideration.”

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