Britain on Wednesday unveiled sweeping changes to its system of financial regulation, handing new powers to the Bank of England and abolishing a watchdog blamed for failing to foresee the near-collapse of the banking system. George Osborne, the new Conservative finance minister, said in a keynote speech that powers would be handed back to the Bank of England and regulator the Financial Services Authority (FSA) would be axed. The so-called “tripartite” system - which shared responsibility for regulation between the Bank of England, the FSA and the finance ministry - would be ended, he said. It was set up by the previous Labour administration. “What we are proposing is a new system of regulation that learns the lessons of the greatest banking crisis in our lifetime,” the chancellor said during the speech in London. The plans from the Conservative-Liberal Democrat coalition government, which came to power in elections last month, were “a new settlement between our banks and the rest of our society,” said the minister “A fairer settlement in which the banks support the people, instead of the people bailing out the banks.” Osborne revealed the shake-up at his first Mansion House speech, an annual address to business leaders that is one of the most high-profile in the finance minister's calendar. Powers for financial regulation would be concentrated at the Bank of England and three new watchdogs would be set up within the bank in a bid to better coordinate responses to future crises, said the minister. “At the heart of the crisis was a rapid and unsustainable increase in debt that our macro-economic and regulatory system utterly failed to identify let alone prevent,” he said. “When the crunch came, no one knew who was in charge,” the minister added. The Conservatives had vowed to overhaul regulation of the financial system when they were fighting to win power from Labour at the May 6 elections. The issue became a political battleground after Britain's banking collapse, which heralded the start of the country's deepest recession since the 1930s. Osborne, a cabinet minister in the new government headed by Conservative Prime Minister David Cameron, said the FSA would be replaced by an authority which would operate as a subsidiary of the Bank of England. The new prudential regulator would oversee financial firms, including banks and building societies. Two further watchdogs would also be established within the Bank of England. The financial policy committee would watch out for threats to economic and financial stability, while the consumer protection and markets authority would regulate the conduct of financial firms providing services to customers. The transition to the new set-up would be completed in 2012, said the chancellor. Bank of England governor Mervyn King welcomed the reforms, saying the previous set-up at the FSA had not been effective. “In a crisis, decisions must be made quickly and decisively and the central bank, working with government which is always responsible for any use of public money, needs to be in charge,” he said. “That was one of our painful lessons.” Osborne also confirmed plans for a tax on banks and said the coalition would “demand further restraint on pay and bonuses.” And the government would establish an independent commission to study whether big banks should be broken up and their investment and retail arms separated, said the chancellor.
