Tories plan to scrap FSA

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

In a speech in the Bloomberg offices he said that the tripartite regulatory system, set up by Gordon Brow 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 white paper, ‘From crisis to confidence: Plan for Sound Banking', this week. The plans include the construction of a new Consumer Protection Agency 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,” added Osborne.

But the proposals have been slammed by financial services industry commentators who labeled the reforms expensive, bureaucratic, and pointless. BIBA said it looked at the proposals with interest but is disappointed to note that a system of two ‘regulators is being proposed – The Bank of England for financial matters and the CPA for conduct of business.

Eric Galbraith, Biba chief executive said: “Our members tell me on a regular basis that they 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!”

Galbraith added: “If and when the time comes, we would aim to be actively involved in any industry consultation on proposed changes.”

Michael Wainwright, partner at international law firm Eversheds said: “The FSA is firmly established as the front line 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 than the FSA.”

The Association of British Insurers 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 here. The key issue for insurers, whoever supervises them, is that insurance is not treated like banking. We must remember that regulation has worked better for insurers than for bankers."

The proposals are said to mirror Barack Obama’s plans to beef up the powers of the Federal Reserve. “And like the Obama administration in the US, 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.