FSA axed and Bank of England beefed up in regulatory shake-up

Chancellor George Osborne announces biggest shake-up in City regulation in 13 years.

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by Tony Bonsignore on Jun 17, 2010 at 09:08

The Financial Services Authority is to be abolished and the Bank of the England given wide-ranging powers to prevent another financial crisis, the chancellor George Osborne announced last night.

The move will make the new enlarged central bank one of the most powerful regulatory bodies in the world, with responsibility for both monetary policy and financial regulation.

‘Just as the role of a central bank in monetary policy is to take the punch bowl away just as the party gets going, its role in financial stability should be to turn down the music when the dancing gets a little too wild,’ the Osborne told an audience at London’s Mansion House last night.

The FSA, meanwhile, is to be replaced by a new prudential regulator that will operate as a subsidiary of a beefed-up Bank of England.

From the ashes of the FSA a new ‘Consumer Protection and Markets Authority’ will be created to regulate every firm providing financial services to consumers, the chancellor announced, promising further details today of what will be the biggest shake-up of City regulation in 13 years.

The Bank of England, meanwhile, will be transformed into one of the most powerful regulatory bodies in the world. A new Financial Policy Committee within the bank will be given the power and responsibility to look at the ‘macro issues that may threaten economic and financial stability and take effective action in response.’

The current ‘tripartite agreement’ between the FSA, the Treasury and the central bank had ‘utterly failed’ both before and after the crisis, Osborne said in his first big set-piece speech as Chancellor.

‘At the heart of the crisis was a rapid and unsustainable increase in debt that our macroeconomic and regulatory system utterly failed to identify let alone prevent,’ he said.

‘The Bank of England was mandated to focus on consumer price inflation to the exclusion of other things. The Treasury saw its financial policy division drift into a backwater. The FSA became a narrow regulator, almost entirely focussed on rules based regulation.’

‘No-one was controlling levels of debt, and when the crunch came no one knew who was in charge.’

The new system of regulation would rectify these shortcomings, Osborne promised, by bringing together responsibility for micro- and macro-prudential regulation under one roof.

To some surprise it was also announced that Hector Sants, the current chief executive of the FSA, would stay on after the FSA’s demise, to become the new deputy governor and chief executive of the new prudential regulator.

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8 comments so far. Why not have your say?

Would it not have made better sense for the Chancellor to beef up the FSA and make it fitter. The increase in consumer debt could not have been prevented by the FSA; this was always within the remit of the BoE. So whats new? this is change for changes' sake as it's for no credible reason. It just doesnt square up. the problem is FSA lacks capacity and this was all that needed to be addressed.

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GHLets runs a £5 million 5 Star self catering property business in Royal Greenwich, London. The business has expanded over the last 5 years in the Conservative style of hard work & prudence. Set up long term fixed mortgages, as advised by Accountants and FSA financial advisers; which are now ending. (Interesting to point out that these same financial advisers took the opposite and took on trackers as found out 18 months later). Now looking to secure mortgages again with fixed term contratcs or repayment plans.. The problem is that there are now no products anywhere in England from any Banks or mortgage companies to supply us with any products/ contratcs. It is very clear that these same institutions are waiting for the Bank of England to raise rates which will then crucify small businesses like ours as they will be able to pass on these higher rates from averages of nearly 6% which we pay now. This means that lending Companies have not only profited on the way up but also when they mismanaged thier own affairs, gone bankrupt, been bailed out and will soon further profit from their unique positions. Yes I agree the apology is needed. The Conservatives have a historical lineage of knowing how to run the a country and make money; so I await patiently for some good newson lending via our new Public servants. Our former public servants have left this great country bankrupt yet seem to have retired with multi millions to their castles.

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The FSA failed under Hector Sants policy guidance and through his lack of insight so why keep him on?

As the only bit of the FSA that seems will survive is the bit that deals with IFAs and the banks' tied advisers, is it not time that they actually recruited some IFAs that know how things should work to get the best for clients, into positions of influence there? Till recently there was not a single iFA employed and, as bankers all, senior FSA staff had developed a reputation for favouring the banks' sales techniques designed to enrich the banks through commission earnings rather than meeting TCF standards (67% of all client complaints against just four banks...).

Without a new broom to change staffing and attitudes, it will be more of the same - micro-management, high charges, plush offices, poor value for money, arrogant attitudes, etc.

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Let us hope that those of us that provide advice to private investors are relieved of some of the over regulated nonsense that we have put up with by the current regime! This new Government has promised less of the nanny state so it would be a breathe of fresh air for this to be carried over to providers of financial advice. The current system only seems to irritate investors by flooding them with useless amount of paperwork expalining that if they cross the street they might get run over! Hopefully we can get back to providing advice to suit the investor in a manner that is clear and to the point without having to include volumes of risk analysis and warnings

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It was the FSA that raised the capital ratios for the banks and that is why RBS and HBOS were forced to run to the Government. The point is they did it 3 years too late and at the worst time for the recession. This was what stopped the banks lending at an instance.

The FSA did not understand what pro-active means they were always reacting to the mess they had created along with GBown. The FSA had to go like GB!

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Nooooo, Anon 1, the FSA pays itself far too much and has a box-ticking mentality, to the utter frustration of many practitioners in financial services, demonstrating just how little they know about the issues involved. Osbourne and Cable's move is very, very welcome and a vote for common sense as well as good business practise.

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Anon 22, you do realise that it will be the same people (many of whom came from the BoE in the first place) doing the same job with different email addresses? Your frustrations aren't going to change. Its all just a, perhaps politically necessary, rebrand.

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Anonymous 4 needed this 'off the record'

Jun 17, 2010 at 15:29

oh and they'll be paid the same if not more

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