In the first days after the Coalition deal between the Conservatives and the Liberal Democrats was reached, the word from the Treasury was that the changes to the regulatory system would only go part of the way down the road the Conservatives had mapped out before the election. The Bank of England was certainly going to be given the key role in macro prudential supervision and a new financial crime agency was going to be formed but further dismemberment of the FSA was signalled as unlikely. In the few weeks since then it appears that Mr Osborne has asserted his authority over the Treasury - possibly helped by the sudden departure under a cloud of the highly able Liberal Democrat no 2 in his team, David Laws - and so now we are looking at a major reform of regulation.
In addition to the anticipated role in macro prudential supervision, the micro prudential supervision of banks, investment banks, building societies and insurance companies is also going to a greatly expanded Bank of England. Responsibility for economic crime will be vested in a new (as yet formally unnamed) agency, leaving a new organisation born out of the FSA to "regulate the conduct of every authorised financial firm providing services to consumers". This will be called the Consumer Protection and Markets Authority, indicating a slightly expanded - and better balanced - organisation than the Conservatives' original proposal which was just for a Consumer Protection Agency which struck me as a potentially uncomfortable place for intermediaries, independent financial advisers and insurance brokers to find themselves. The "and Markets" bit is quite important and has been casually glossed over in alot of the coverage today, so much so that many people are still calling it the CPA. The Conservative manifesto suggested that market supervision would also go to the Bank of England but, as Mr Osborne explained last night, this is being vested in the new body: "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". It is this responsibility that will give it a more balanced perspective, which is very welcome.
Of course, we now face two years of change, and with it uncertainty, although announcements about the key personnel have been made very quickly and some of those people, in turn, have been quick to confirm what is going to happen on key policy areas such as the retail distribution review. There will be critics of these reforms, both political and from within the industry, but it is hard not to find oneself agreeing with Mr Osborne's preface to the key announcements at Mansion House last night: "When a system of regulation fails so spectacularly people are going to ask what replaces it. When the failure of certain banks have cost the country so much, people are rightly going to ask how to stop it happening again". There is a need to restore confidence and giving the Bank of England the pivotal role probably has the best chance of succeeding on that front.
Of course, there is alot else going on beside this: the debate about a levy on banks and longer term reform of the structure of the banking sector is still raging here and in Europe. It does seem that governments are at last, as the immediate crises subside, getting to grips with the need to put in place better systems of regulation so they don't happen again and look at ways of recovering some of the costs of sorting out the crises of the last three years.
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