Osborne promises to scrap FSA in favour of Bank of England

Shadow Chancellor George Osborne wants to scrap the Financial Services Authority (FSA) and grant the Bank of England responsibility for maintaining financial stability.

He said that the tripartite regulatory system, set up by Gordon Brown in 1997, had failed. “We will give the bank responsibility for the prudential regulation of all of our banks, building societies, and other significant financial institutions including insurance companies,” he said.

Osborne launched the Tory white paper, “From Crisis to Confidence: Plan for Sound Banking”, this week. It includes proposals for a new Consumer Protection Agency (CPA) taking powers from the FSA and Office of Fair Trading.

“The CPA will have new powers to name and shame institutions that break the rules or who receive a lot of consumer complaints,” he said.

But commentators in the financial services industry say the proposed reforms are expensive, bureaucratic, and pointless.

And Biba said it was disappointed that a system of two regulators was proposed – the Bank of England for financial matters and the CPA for conduct of business.

Eric Galbraith, Biba’s chief executive, said: “Our members … want a system of regulation that is both appropriate and proportionate. Without further details, I fail to see how having two separate bodies will help achieve this.

“My members do not want potentially two sets of fees, rules and regulatory returns!”

He said the association would want to be involved in any industry consultation on proposed changes.

Michael Wainwright, a partner in the international law firm Eversheds, said the FSA was firmly established as the “frontline regulator” for insurance, investment and mortgage firms. “The transfer of bank supervision as a whole from the FSA to the bank would be pointless. There is no reason to think that the bank would do a better job.”

The ABI said it welcomed the detail and clarity of the paper, but added: “These are significant issues for the insurance industry and there is much to consider. The key issue for insurers, whoever supervises them, is that insurance is not treated like banking.”

The Tory proposals are said to mirror Barack Obama’s plans to beef up the powers of the Federal Reserve .

“Like the Obama administration, we will force financial institutions to be more transparent about their retail consumer charges, providing information to consumers in a standardised way so that they can see if they would be better off switching provider,” said Osborne.