Tories to scrap FSA in banking shakeup
Updated on 20 July 2009
The Conservatives outline radical plans to reform Britain's financial system by abolishing the Financial Services Authority and giving power to the Bank of England.
The Tory leader David Cameron said the tripartite system introduced by Gordon Brown was a "policy failure of historic proportions" that was directly to blame for the crisis facing the country.
He dismissed the government's proposed reforms as inadequate measures that jeopardise recovery, promising instead to give sweeping new powers to the Bank of England.
Under Conservative proposals, it will regulate city pay structures, risk-taking and the size of financial institutions, with the FSA swallowed up into a new consumer protection body.
The government plans to keep the "tripartite" system - involving the Bank, the FSA and the Treasury - but introduce an overseeing Council for Financial Stability.
In the system the Treasury sets overall policy, the Bank of England keep an eye on economy-wide risks, and the Financial Services Authority regulates individual banks.
But none of the members of this tripartite system moved fast enough to stop the biggest financial crisis since the 1920s. Labour's solution, announced earlier this month, was to give the FSA new powers.
Launching the reform plans, Mr Cameron said: "The decisions that led to this crisis represent a policy failure of historic proportions. We now need deep, wide-ranging reform that matches both the magnitude of the crisis and the scale of the hardship inflicted on the British people.
"That reform must be based on a clear understanding of what went wrong in the first place and a clear determination to put it right.
"I'm afraid the government's proposals that all we need are a few more tweaks and a little bureaucratic tinkering are totally inadequate and risk preventing a recovery," he said.
The Tory plan involves:
- The scrapping of the tripartite system, with responsibility for maintaining financial stability handed to the Bank of England.
- New powers for the Bank of England to regulate the pay structures, risk, complexity and size of financial institutions, including requirements on those which put financial stability at risk to hold large amounts of capital to act as insurance to protect the taxpayer.
- The abolition of the FSA and the combination of its consumer protection functions with parts of the Office for Fair Trading to create a new Consumer Protection Agency watchdog.
- A new senior post within the Treasury for a minister with responsibility for European financial regulation.
- A competition investigation by the Office of Fair Trading and Competition Commission into the effect of mergers within the banking industry such as last year's creation of the giant Lloyds Group from Lloyds TSB and HBOS.
