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Financial Regulation

Volume 523: debated on Thursday 17 February 2011

The Government have today presented to Parliament a consultation document, “A new approach to financial regulation: building a stronger system” (Cm 8012), which provides further detail on the coalition Government’s proposals to reform the framework of financial regulation in the UK following the complete failure of the tripartite system over many years to identify or tackle the build up of risk in the financial system. That failure precipitated the biggest financial crisis for a generation, leading to a run on a major high-street bank and the part-nationalisation of two of the largest banks in the world. We need a wholly new approach. The reforms detailed today will address the fundamental weakness of the regulatory system, created in 1997. This document is available on the Treasury website.

This document expands and further consults on the Government’s proposals, set out last year, to disband the Financial Services Authority and establish a new system of more specialised and focused financial services regulators. The Government’s reforms focus on three key institutional changes: the creation of an independent Financial Policy Committee (FPC) in the Bank of England, the establishment of a new Prudential Regulation Authority (PRA) as a subsidiary of the bank, and the creation of an independent conduct of business regulator, the Financial Conduct Authority (FCA), which was formerly provisionally titled the consumer protection and markets authority. This corrects the failures of the past by creating regulators with clear objectives and the powers needed to deliver them.

“A new approach to financial regulation: building a stronger system” outlines the Government’s thinking on a range of issues, including: the objectives of the new regulatory bodies and the factors which they must consider in fulfilling their objectives; the levers and likely tools the FPC will have at its disposal to protect financial stability; the PRA’s judgment-led approach in regulating firms; the FCA’s more proactive and focused approach to regulating conduct in financial services and markets; accountability measures for the new regulatory bodies; and co-ordination mechanisms which will determine how the regulatory authorities will work together, and with regulated firms. Our reforms will create a stronger regulatory structure which reinforces stability in financial markets and helps deliver better outcomes for consumers.

Following the consultation, the Government will present a further White Paper including a draft Bill for pre-legislative scrutiny in the spring. The Government expect the new regulatory structure to be in place by the end of 2012.