Financial regulation in the UK

On 16th June 2010, George Osborne gave his first Mansion House speech as Chancellor of the Exchequer.  In his speech, he announced radical changes in the UK’s financial regulations, which includes the abolition of the current tripartite system.

To replace it, the Bank of England (BoE) will be given responsibility for macro and micro-prudential regulation.  The FSA will be wound down with its remaining responsibilities being taken up by the new Consumer Protection and Markets Agency.  These changes will be completed by 2012.

George Osborne said that the tripartite had failed ‘spectacularly’ and that the new government wanted to learn from previous mistakes. ‘When it came to the crunch, no one knew who was in charge.’

The Chancellor’s announcements were pretty much set out in the Conservative Party’s Financial Services White Paper, 2009.  The coalition government agreement document did not give many details of policy in this area, although it did state its intention to give the BoE control of macro-prudential regulation and oversight of the micro-prudential regulation.

Following George Osborne’s speech, Mark Hoban, Financial Secretary, announced further details of the planned changes to Parliament, including an insight into how insurance will be dealt with under the new arrangements.

The plans announced by the Chancellor will see the current tripartite system replaced by a ‘twin-peaks’ regime which will distinguish prudential supervision from consumer protection.  The FSA will be abolished with its regulatory powers passing to the BoE and the consumer remit will go the new Consumer Protection and Markets Authority.  There will also be a new Financial Policy Committee, which will be responsible for financial stability as well as a body responsible for financial crime.  The new regulators are expected to be funded by a levy paid by firms.

In his speech, the Chancellor also announced a single body to tackle financial crime, the introduction of a banking levy and the creation of a banking commission to look at splitting retail and investment banking operations.

A full consultation will be held on the changes to financial regulation, and a detailed document has been promised before the summer recess in July.  The Labour Party questioned the speed of change and whether the new system would give rise to regulatory issues ‘falling between the cracks’.