FSA to be abolished
The Financial Services Authority (FSA) is to be abolished in a shake-up by Chancellor George Osborne announced less than a week before the emergency Budget.
In a bid to address what he termed the "spectacular regulatory failure" of the City watchdog, Osborne said he would increase the powers of the Bank of England and added the FSA would "cease to exist in its current form".
In his speech at Mansion House, at the Lord Mayor's annual dinner to the City, Osborne paid tribute to former Chancellor Alistair Darling and the job he had done to make up for the failure of the regulatory body.
But he also criticised the current three-party regulatory system: "No one was controlling levels of debt and when the crunch came, no one knew who was in charge."
To remedy this, Mervyn King, the governor of the Bank of England will be given a new remit to prevent the build-up of risk in the financial system, with Hector Sants, currently chief executive of the FSA staying on to aid in the transition.
King responded that his new role in enforcing financial stability would be to "turn down the music when the dancing gets a little too wild".
The chancellor has already confirmed the launch of a new commission, headed by Sir John Vickers, former head of the Office of Fair Trading, to look into the breaking up of the banks.
The independent commission will decide whether investment banks and retail banks should be split to protect consumers' money from the excesses of the City.
Julian Chillingworth, chief investment officer at Rathbone Brothers investment house, says: "I think we need some more clarity as to how this is going to work, but the fact Sants is staying on is positive because they will need someone to steady the ship."
Chillingworth also rubbished claims that King is getting to powerful: "The Bank of England used to be the overall regulator for all the banks and financial organisations and that worked pretty effectively.
"It worked because they had experienced personnel and that is key. In extreme situations when we are faced with a melt down we need someone there to take a decision."
Some commentators have said the real victory for Osborne has been to persuade Sants to stay on for a further three years, which will hopefully maintain stability in this early stage of recovery.
Osborne also confirmed he will hit the banks with another levy in the emergency Budget on 22 June.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.