Regulation of Britain's financial services industry is to be handed back to the Bank of England under the Financial Reform Bill proposed by the newly formed coalition Government in yesterday's Queen's Speech.
Not only will the Bank gain new powers of macroprudential regulation – that is, maintaining financial stability and looking out for new bubbles – but it will also have oversight of microprudential regulation, according to the legislative programme outlined at the opening of the new Parliament.
"Legislation will reform the framework for financial services regulation to learn from the financial crisis," the Queen said.
The proposed Bill is designed to "ensure that aggregate risk and imbalances in the economy are properly monitored and managed, thereby helping maintain financial stability", the Government says.
There has been no overt statement regarding the Conservatives' pre-election commitment to abolish the Financial Services Authority (FSA) since the Tories were forced into a power-sharing alliance with the Liberal Democrats. But the moves outlined yesterday – which abolish the tripartite regulatory system introduced by Labour in 1997 – raised fresh doubts that the Liberal Democrats have convinced their governmental partners of the need for a reprieve.
The Bill's supporters claim the new provisions will plug the gap left by a defective regulatory structure that meant the problems that culminated in the financial crisis were not spotted in advance. The FSA has acknowledged in the past that it was focused on supervising individual firms' conduct, rather than wider prudential regulation. But industry watchers were questioning what is left for the FSA after the changes outlined yesterday.
The full coalition agreement published by the Government last week has already sliced into the watchdog's brief, hiving off its powers to combat insider dealing and market abuse into a new agency set up to tackle the breadth of white-collar crime. The proposed Public Bodies Reform Bill, which aims to save £1bn per year by cutting the number of quasi-autonomous non-governmental organisations – quangos – may also hit the FSA.
The proposed reforms of financial services regulation are part of a range of measures designed to restore confidence in the City. The Government is also creating an Office of Budget Responsibility to produce independent economic forecasts. But there was no mention in the Queen's Speech of the banking levy and plans to tackle unacceptable bonuses also outlined in the coalition agreement.
The FSA has been highly active since the Conservative Party first announced plans to axe the organisation last July. It imposed a record £34.8m fines last year and warned of "more pain" to come in 2010. In March, six people were arrested in the biggest ever crackdown on insider dealing. And last week, the FSA handed out a £2.8m penalty to Simon Eagle, a former stockbroker found guilty of share ramping.
FSA bans fraudster from working in financial services
The Financial Services Authority (FSA) yesterday banned a former settlements manager at the investment bank Seymour Pierce from working in financial services for stealing more than £150,000 from his employer and a number of its private clients.
The watchdog outlined a litany of dishonest transactions by John White between 2001 and 2006, including £145,000 that had been paid to Seymour Pierce in error hidden in a dormant account, and the transfer of a personal trading loss into another of his employer's accounts. Mr White also stole trading profits, dealing commissions and credit interest from the bank.
Seymour Pierce has returned money and assets to clients affected by the criminal activities, and the bank was last year fined £154,000 by the FSA for its role in failing to prevent the fraud taking place.
Margaret Cole, the watchdog's director of enforcement and financial crime, said: "We expect people who work in the financial services industry to behave with honesty and integrity, yet White's conduct was anything but."Reuse content