Reforms of the City 'will keep consumers safe'

(AFP/ GETTY IMAGES)

A major overhaul of how the City is regulated will ensure that consumers will never again be confronted by the prospect of a full-scale banking crisis, the Treasury claimed yesterday.

Radical reforms to the Financial Services Authority (FSA), blamed by many for failing to spot the build-up of bad debts within Britain's banks, had become necessary because of its "flawed architecture", Mark Hoban, Financial Secretary to the Treasury, told MPs. Mr Hoban conceded the FSA had improved its performance over recent times. But he added Britain's economy had been endangered by Labour's decision to rob the Bank of England of the ability to respond to the increasingly risky actions of Britain's banking sector. He said consumers worrying about their money had been "let down" by the FSA's failures.

Under a new-look system unveiled by the Chancellor, George Osborne, this week, three new committees have been set up within the Bank of England dedicated to overseeing financial firms, financial stability and consumer protection. The FSA will cease to exist in its current guise by 2012.

Mr Hoban said the old system had "failed spectacularly" to head off risks. "No one was controlling levels of debt and, when the crunch came, no one knew who was in charge," he said. "What this package of reforms does is to make sure that we have the right regulatory architecture in place that identifies and tackles the systemic risk and makes sure there is proper protection for consumers so that never again will they be let down."

However, Labour accused the Government of rearranging the furniture, rather than dealing with the irresponsibility of banks. Michael Meacher, the Labour former minister said "colossal bonuses" had driven the recklessness of banks and their use of "fancy investment vehicles".

Earlier, Mr Osborne said his Budget would include measures necessary to reduce Britain's huge deficit.