London: The Bank of England will assume broad powers over UK financial regulation, including oversight of systemic risk and clearing houses, under proposals laid out by Treasury Minister Mark Hoban.
The bank will establish a policy unit that will include industry executives to monitor risks to the financial system, Hoban said in a speech in London yesterday. A new consumer agency would also monitor banking products and credit regulation.
Chancellor of the Exchequer George Osborne said on June 17 he will abolish the old regulator, the Financial Services Authority, and give most of its power to the bank by 2012, undoing the oversight model set up by Gordon Brown in 1997. The FSA was blamed by politicians for not doing enough to prevent the financial crisis.
"Perhaps the most obvious failing of the UK system, however, is the fact that no single institution has the responsibility, authority or powers to monitor the system as a whole," Hoban said.
Under the plans laid out by Hoban yesterday, the FSA's other powers would be distributed to a wide range of agencies. Oversight of lenders and insurers would be handed over to a prudential regulator that is a unit of the bank.
A consumer protection and markets authority will be created to monitor conduct in financial markets, Hoban said. The body will have the power to oversee the sale and marketing of products at investment and retail banks that are also overseen by the new prudential regulator.
Some powers of the UK antitrust regulator, the Office of Fair Trading, might also be transferred to the consumer agency. "The CPMA's primary objective in regulation will be to ensure confidence in financial markets," Hoban said. "In pursuing this objective it will focus on the twin aspects of consumer protection and market integrity."
The bank will also take responsibility for overseeing central counterparty clearing houses and settlement systems, Hoban said.
Sustainable recovery
The government's package of spending cuts and tax hikes will slow growth over the next two years but will ultimately make the recovery more sustainable, a leading group of economic forecasters has predicted.
The Ernst Young Item Club also expects the Bank of England to keep interest rates at a record low of 0.5 per cent until the end of 2013, provided the proposed spending cuts "actually come through".
Despite headline inflation at 3.2 per cent being well above the government target of two per cent, the forecasters do not anticipate any short-term move by the Bank of England to raise interest rates. "A base rate of 0.5 per cent will begin to look like the new normal," said Peter Spencer, chief economic adviser to the group.
