FSA chief says £2bn bank levy 'legitimate' in wake of bailout

BRITAIN'S financial regulator yesterday said the government's £2 billion-a-year levy on the banks was "completely understandable", given their bailout by taxpayers.

Lord Turner, chairman of the Financial Services Authority (FSA), also said he believed the levy, detailed in this week's Budget, would have no adverse impact on the capital adequacy levels of Britain's banks.

Turner, speaking at a news conference after the FSA's annual meeting, said: "It's a legitimate tax-raising approach that is entirely for the Treasury to decide. It's completely understandable in light of the costs government has had to bear from the financial system."

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He believed the levy, seen by some critics as a populist "revenge" for the sector's role in tipping Britain into recession, would be "broadly neutral" in its effect on banks' financial stability. "It does not get in the way of the new capital and liquidity regime," Turner said.

His comments came after the recent Mansion House speech by Chancellor George Osborne that confirmed the break-up of the FSA, with its prudential supervision role taken back in-house by the Bank of England.

FSA chief executive Hector Sants, who will retain his role in the new Prudential Authority after being persuaded to stay on by the government, said yesterday that the FSA had "a very strong pipeline of criminal cases coming through". The regulator has been much more aggressive in prosecuting insider trading since the banking collapse, and Sants said this would continue in the two-year implementation period of the regulatory changes to 2012.

"We expect it (the pipeline] to emerge over the course of the next year or two," he said.

He admitted his "principal concern" was how to recruit and retain key staff in a period of transition and "uncertainty" for Britain's new regulatory framework.

But he and Turner stressed that financial firms should see no change in regulatory policy from the "organisational" changes being implemented between now and 2012.

"The aim is that nothing will be different (for firms] from what it otherwise would have been," Turner said.