Osborne to reveal details of banking regulation shake-up

UK MPs will today hear details of the shake-up of banking regulation announced by Chancellor George Osborne in a bid to prevent a repeat of the financial crisis.

Mr Osborne last night announced he was scrapping the Financial Services Authority and handing over its regulatory powers to the Bank of England, which will be given significant new responsibilities to deliver financial stability.

Financial Secretary to the Treasury Mark Hoban will set out details of the changes – due to be phased in gradually over the years to 2012 – to Parliament today.

Mr Osborne’s reforms dump the “tripartite” system created by Gordon Brown in 1997, which the Chancellor said “spectacularly” failed to identify or prevent the collapse in the financial sector.

In its place come three new bodies under the auspices of the Bank of England, including a new Prudential Authority to be led by current FSA chief executive Hector Sants with a remit to regulate financial institutions.

An independent Financial Policy Committee within the Bank and chaired by Governor Mervyn King will have responsibility for watching out for threats to economic and financial stability.

And a Consumer Protection and Markets Authority will regulate the conduct of all authorised financial firms providing services to consumers, to preserve Britain’s reputation as a venue for financial services.

But the Chancellor put on hold the issue of whether banks should be split up into their retail and “casino” elements, setting up a commission under John Vickers to look into the structure of the industry and report back next year.

Mr Osborne promised that his reforms would deliver “a new settlement between our banks and the rest of our society – a fairer settlement in which the banks support the people, instead of the people bailing out the banks”.

The independent FSA will cease to exist in its current form in 2012, while the new bodies will be set up over the coming months and operate in shadow form until that date, said Mr Osborne in his first Mansion House speech as Chancellor.

Bank of England Governor Mervyn King welcomed the reforms, saying the financial crisis proved that putting prudential regulation, consumer protection and oversight of markets together in the FSA “didn’t work in practice”.

Mr King said the Bank would focus on maintaining the stability of the banking system as a whole, looking not only at problems within individual institutions but also wider developments like the excessive lending which triggered the financial crisis.