Government launches financial watchdogs

Published on Monday 26 July 2010 15:50

A NEW watchdog to identify risks to the economy is to be set up as part of sweeping reforms of financial supervision planned by the new government.

The launch of the Financial Policy Committee this autumn would be followed by a separate Consumer Protection and Markets Authority.

Both watchdogs will operate in "shadow form" until legislation is passed to approve them next year.

The news came as the government launched a public consultation on its plans to scrap the Financial Services Authority and hand the bulk of its powers to the Bank of England.

Financial Services minister Mark Hoban also sent a warning to the European Union, which is in the final stages of creating a set of new pan-EU supervisory bodies, over granting powers to them to intervene directly in a national bank, insurer or market.

"We believe the new European supervisory authorities should reinforce the single market. It should not regulate institutions directly," Hoban said.

Membership of the FPC, which will monitor risks that could destabilise the wider financial system, will include the governor of the Bank and the chairman and chief executive of the FSA in the interim period.

The FPC might also gain the power to limit mortgage lending by imposing collateral limits. Hoban added supervision of clearing and settlement houses for securities transactions will be shifted to the Bank of England. Although the Bank will become one of the most powerful regulators in Europe under the proposals, he said the government would have the final say in a crisis.