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City watchdog faces axe as Osborne backs shake-up
Nicholas Cecil9 Mar 2009
George Osborne today welcomed proposals for a radical shake-up of the City watchdog including the possibility of axing it.
The shadow chancellor praised an interim report on the Financial Services Authority by Sir James Sassoon as "powerfully argued".
Mr Osborne stopped short of backing any of the specific measures at this stage, however. One option being highlighted is that a new regulator of banks, and the whole financial sector, may be "folded into" the Bank of England.
Mr Osborne said: "I am delighted that Sir James has published this powerfully-argued report, which proposes radical options to overhaul our banking regulation. Unlike the Government, we do not believe the regulatory arrangements created in 1997 are fundamentally sound.
"The current tripartite structure failed to protect Britain's economy from over-indebtedness, a banking crisis, and ultimately recession. The regime needs a radical overhaul, and this report sets out the options that we need to consider."
Mr Osborne published the report by Sir James, who was managing director of finance and industry at the Treasury from 2002 to 2005, ahead of FSA chairman Lord Turner unveiling his own plans, expected next week, to improve the financial watchdog.
Sir James puts forward five key possible reforms. They are that:
● The FSA, which currently has divisions for retail and wholesale, is reorganised with one part focusing on the "prudential" watchdog function and the other on conduct of business.
● The Bank of England is given new powers to intervene in the reformed FSA if it believes that a failing institution is threatening overall market stability.
● The FSA is abolished and replaced with two separate regulators, one for prudential micro-regulation (of institutions) and the other for conduct of business. This would mirror the "twin peaks" model used in Australia and Holland.
● The Bank of England is handed powers to step in over the head of the new prudential micro-regulator in exceptional circumstances after the FSA has been split up.
● The new micro-regulator of banks, or the whole financial sector, is part of the Bank of England.
Sir James put forward his initial proposals in the wake of the FSA's failure to take action to prevent the run on Northern Rock and other shortcomings exposed by the credit crunch.
Labour attacked the Tory blueprint, suggesting it would "turn back the clock" to before Gordon Brown introduced the tripartite system of regulation.
A source added: "Then, there was just not the adequate level of protection."
Reader views (10)
I think it is right to re-organize this loose coalition that Crash Gordon put in place does not work. So we need a much stricter and stronger regulatory body. Not like Nu Labor (more regulations) but I think the Conservatives show that they know about finance in that the regulation has to be worth something not just a Nu Labor style target system. So maybe less regulation indeed is better as long as the regulator can catch the bad ones and PUNISH them! This is not the case now, under Nu Labor.
- Georgie, Islington, London, 10/03/2009 08:41
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So after 11 years of Nu Labor rules and regulations on everything EXCEPT finance... Crash Gordon knows he has been a failure and tries to blame everyone else! The bankers were just doing what the government and shareholders wanted them to do! It would be sad if anyone believed the lax UK "Nu Labor" framework had nothing to do with the specific UK crisis!! Anyhow for too long people here have gotten away with no-elections....
- Pat, London, 09/03/2009 21:13
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For over ten years now the Tories and especially John Redwood have been arguing against Regulation of the Financial Sector. Now they've done a total U-turn. Has anybody in the Tory Party admitted they'd got it wrong or apologised for putting presure on the Government? No Way. They've just airbrushed their earlier policies out of existence.
- Humph, Acton England, 09/03/2009 18:33
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I am truly amazed to see Crash Gordon think he is getting away with his whitewash: he is the one who made the regulatory agencies weak and therefore created this financial mess!
- Steveo, London, 09/03/2009 18:32
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An essential element in the failure of Gordon Brown's Tripartite system of regulation was lack of sufficient co-ordination between the three elements involved. These proposals go some way to offering solutions, but George Osborne is right to take some time for consideration before committing to them policy. The reaction of the Labour party is pathetic. though many of us would indeed like to turn back the clock to before Brown but for very different reasons.
- James Elliott, Eastbourne UK, 09/03/2009 16:04
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I can just see the new Tory city watch dog.
A pink poodle; with no teeth.
- mickyinlondon, london, 09/03/2009 15:11
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The fact is that the head of the FSA said that they failed to identify the credit crunch. They failed for many reasons but one of the reasons is that they were only responsible for part of the picture not the whole picture. Osborne as I read it is saying that the FSA needs to be reconstituted, that does not mean complete abandonment of regulation. The fact is the credit crunch has two key components, the first was politically motivated [and mandated by law] reckless home lending in the USA which was then secondly opaquely packaged using derivatives and exported out into the world banking system. This lack of disclosure meant that the best regulators and central bankers knew there was a problem, they knew it was huge, they had no means of tracking or controlling it. The knee jerk Left reaction is as always pitifully ill informed and offers no solution to the real problem of regulators being light years behind the curve. Expecting improvement without making changes [radical] is the definition of insanity!
- James Macleod Ritchie, Oyster Bay Cove, 09/03/2009 14:50
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I think VD has missed the point. Mr Brown stripped the BOE of all power and gave to the FSA. Now either the FSA failed or the Treasury ignored their advice. Either way it has produced the crises we are in. But no matter, blame the Tories as they were in power only 12 years ago so it must be their fault!
- London Tone, London, 09/03/2009 14:41
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A completely new Regulator is required to replace the FSA. The new Regulator MUST be pro-active in their approach rather than simply being re-active like the present FSA has been for the last decade or so. Perhaps everyone at the existing FSA could be shuffled across to Regulating estate agents and the like? Surely, they would at least be up to that brief?
- Fraser, Telford Park, 09/03/2009 14:13
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George Osborne is a joke. Does anybody in the Conservative party vet his comments? It was he and David Cameron who refused to back the government in any regulation whatsoever. Now he has the gall to say the government's regulation was not fundamentally sound. Better to have some fundamental regulation than none at all as the Conservatives wanted. Where would the economy have been if we had followed Tory doctrine. Go away, George, and let the adults sort it out.
- Val Daniels, Mijas Costa, Spain, 09/03/2009 12:48
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