The UK has unveiled its much-awaited Financial Services Bill which aims to overhaul the failed system of financial regulation but it has already been met with criticism.
The Bill seeks to return responsibility for regulating the stability of the financial system to the Bank of England and has given macro-prudential authority to the Bank’s Financial Policy Committee in monitoring the financial sector for potential systemic risks.
As a subsidiary of the BoE, the Prudential Regulation Authority will regulate financial firms that manage complex risks on their balance sheets, on a micro-prudential level. The Financial Conduct Authority is responsible for protecting consumers and keeping financial business and markets in line.
The FCA, PRA and the Bank’s FPC are set to replace the previous tripartite structure which includes the Financial Services Authority.
But British bankers have pointed out that handing more regulatory power to the central bank warrants greater accountability.
Chief executive of the British Bankers’ Association, Angela Knight said on Friday: “The British Bankers’ Association believes that greater power requires closer scrutiny. Concentrating regulation at the Bank of England needs to be balanced by stronger governance and accountability.
“The Court of the Bank of England will need to be ramped up and we are pleased people are now talking about strengthening oversight arrangements in light of the Bank’s new responsibilities,” the BBA head said.
Michael McKee, head of financial regulation at DLA Piper, says that key concerns expressed in pre-legislative talks called for stronger controls over the Bank of England exercising its new powers and greater democratic accountability for the new Financial Policy Committee.
McKee says: “A lot more work has been done to draft in stronger democratic controls over the work of the FPC and to include more information that will come into the public domain.
“It will, however, still remain a very powerful committee which it will be difficult to control democratically in times of crisis. Review of performance will inevitably be after the event.”
The Bill also sets out new crisis management rules which have been in need of an overhaul given the failure of the current framework revealed by the financial crisis.
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