UK Treasury gives FSA new powers
Chancellor Alistair Darling has defended the role of the FSA, granting it new financial stability and enforcement powers under the UK tripartite system
LONDON - The UK Treasury has released a white paper, Reforming financial markets, outlining proposals for increasing the micro-prudential regulatory powers of the Financial Services Authority (FSA) as well as making the City watchdog responsible for macro-prudential financial stability.
Greater macro-prudential supervisory powers for the FSA are a source of controversy, with the Bank of England seen as a contender to receive systemic risk oversight responsibilities.
The UK Conservative opposition party opposes the Chancellor's plans to increase the role of the FSA, which was created under plans by the current prime minister, then Chancellor Gordon Brown, in 1997.
The white paper proposes the formation of a Council for Financial Stability (CFS) composed of the Bank of England, the FSA and the Treasury, chaired by the Chancellor, which would meet quarterly to discuss long-term financial stability and systemic risks to the industry.
Should the Conservative party win the general election next year, Conservative shadow-Chancellor George Osborne has vowed to dismantle the tripartite system and hand FSA powers to the Bank of England, criticising the FSA's failings displayed over the Northern Rock debacle and in its response to the financial crisis.
"The next Conservative government will abolish the tripartite system," said Osborne. "We will put the Bank of England in charge of the prudential supervision of our banks, our building societies and our other significant financial institutions. For we have learnt from this crisis the old truth: that you cannot separate central banking from the supervision of the financial system."
Instead, Darling's white paper wants to divide areas of responsibility for financial stability between the FSA and the Bank, in alignment with existing systemic risk legislation already passed as part of the 2009 Banking Bill and its Special Resolution Regime (SRR) for bank rescues and collapses.
The FSA has already prepared for its financial stability role by creating a standalone financial stability division as part an internal restructuring programme at the regulator, brought about in response to Northern Rock and the crisis - the same reason the Conservatives are seeking its dissolution.
Darling also wants to grant the FSA enhanced powers to enforce remuneration standards, mandating it to publish an annual report on compensation practices, including compliance by firms to the regulator's proposed code of practice on remuneration, to be incorporated into its handbook.
If pay structures at the largest banks and financial firms are seen to diverge from investment risks, the FSA has said those firms could be punished by being forced to hold higher capital or with fines.
"We need a change in culture in the banks and their boardrooms, with practices that are focused on long-term stability and not short-term profit," said Darling. "The FSA has powers to penalise banks if their pay policies create unnecessary risk, and are not focused on long-term strength."
The white paper suggests that, through a combined approach of dynamic provisioning and buffers of "capital-reserving" during times of economic plenty, banks will have to hold significantly more capital generally.
The Treasury has backed away from proposing detailed numbers, preferring to wait on the Basel Committee and the European Union's Capital Requirements Directive, but cites as an example the Swiss proposal that banks hold capital amounting to 16% of risk-weighted assets - double the current requirements - as early as 2013.
The white paper can be read here.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
Europe’s banks can’t agree on how to fix the output floor
Some want market risk excluded, while others push for greater savings from credit modelling
SEC gunning to take over Cat in 2027
Regulator's bid for control of market surveillance apparatus splits industry participants
FCMs back CFTC proposal granting opt-out from CME oversight
New rules aim to address conflicts of interests at vertically integrated exchange groups
Banks urge Singapore to relax exposure limit on crypto assets
Lower capital for tokenisation and stablecoins welcomed, but cap will curb bank involvement for now
Larger EU players move slower on clearing relocation, says Esma
Active accounts rule driving smaller firms onshore; regulator ready for bigger role if lawmakers want
BoE’s crisis lending plan hits buffers
Scepticism greets regulator’s proposal to increase releasable leverage capital buffers
BoE’s leverage ratio rejig to hit HSBC and StanChart
Proposed changes aim to rebalance scales in favour of domestic lending
Small UK lenders set to escape leverage ratio ratchet
BoE’s planned economic indexation of tougher prudential thresholds could ease capital planning