George Osborne to create a new prudential regulator

The Chancellor of the Exchequer George Osborne has outlined the government’s intention to hand over regulatory control of the financial services sector to the Bank of England.

In his first Mansion House speech last night, Osborne said the Financial Services Authority (FSA) will cease to exist from 2012 with its powers being shared among several new regulatory bodies, with the majority coming under the control of the Bank of England (BoE).

FSA chief executive Hector Sants will remain as chief executive of the Prudential Regulatory Authority, which replaces the FSA. There will also be a new Financial Policy Committee.

Osborne said: “We will create a new prudential regulator, which will operate as a subsidiary of the Bank of England.

“It will carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies.

“We will create an independent Financial Policy Committee at the Bank, which will have the tools and the responsibility to look across the economy at the macro issues that may threaten economic and financial stability and take effective action in response.

“We will also establish a powerful new Consumer Protection and Markets Authority. It will regulate the conduct of every authorised financial firm providing services to consumers. It will also be responsible for ensuring the good conduct of business in the UK's retail and wholesale financial services, in order to preserve our reputation for transparency and efficiency as well as our position as one of the world's leading global financial centres.

“I can also confirm that we will fulfill the commitment in the coalition agreement to create a single agency to take on the work of tackling serious economic crime that is currently dispersed across a number of Government departments and agencies."

Sants will oversee the transition and become the first new deputy governor and chief executive of the new prudential regulator supported by Andrew Bailey from the BoE as his deputy in the new regulator.

An independent commission on the banking industry will also be established and headed up by Sir John Vickers a former chief economist at the BoE, member of the MPC and chair of the Office of Fair Trading.

Osborne said that Financial Secretary Mark Hoban will give further details in Parliament today.