Plans for new City watchdogs ‘need major sharpening’
The cross-party committee examining radical new City legislation said the Financial Services Bill currently going through parliament needs several major amendments.
In particular, the objectives of the three bodies to replace the FSA – the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority – need to be straightened out and each organisation given a “clear focus”.
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Hide AdThe committee is keen to avoid the “fuzzy allocation of responsibilities” of the outgoing tripartite regulatory system, which failed to identify and prevent the 2008 banking crash.
The Bank of England, which is being handed significant new responsibilities under the bill, also needs to be modernised and made more accountable to parliament, according to the joint committee on the draft bill.
The MPs have proposed that the Chancellor be handed the power to instruct the Bank of England governor in the event of a significant risk to public funds. The Chancellor should then take on overall responsibility for handling the crisis.
Peter Lilley, chairman of the committee, said: “The previous system of financial regulation failed to prevent the 2008 banking crisis or handle it properly. Under the tripartite system no single body had the stability of the financial system as its primary responsibility and once the crisis erupted and differences about how to handle it emerged no one person was clearly in charge.
“It is vital that if the taxpayer might be liable for costs to save a financial institution that the Chancellor is given early warning of any such risk and then automatically assumes responsibility for handling that situation. It is the Chancellor who is responsible to parliament and the public.”