George Osborne’s efforts to overhaul Britain’s financial regulation have been dealt a severe blow after a joint committee of MPs and Lords warned his draft proposal “needs significant amendments” to be fit for purpose.
The Joint Committee on the Draft Financial Services Bill has said the Government must rethink its proposed structural reforms or risk a damaging repeat of history.
The critical report, which is due to be published today, suggests the Coalition has missed the point on some of the key issues involved, not least failing to clarify who would be in charge should a problem in the system occur – a confusion which aggravated the last crisis.
Peter Lilley, Conservative MP and chairman of the committee, said the Chancellor and not the Bank of England should “take charge” in any situation which might result in the need for public money.
“It is vital that, if the taxpayer might be liable for costs to save a financial institution, the Chancellor is given early warning of any such risk and then automatically assumes responsibility for handling that situation,” he said. “It is the Chancellor who is responsible to Parliament and the public, and decisions of that nature must rest with him.”
The joint committee said there was a risk of repeating the failure of the previous tripartite regulatory system, which split responsibility three ways between the Treasury, the Bank of England and the Financial Services Authority but was found lacking when the crisis took hold.
It said the division of power and responsibility between the three new organisations the legislation creates – the Financial Policy Committee, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority – was still unclear.It called for an end to the “fuzzy allocation of responsibilities”, which ultimately led to failure in 2008.
“The previous system of financial regulation failed to prevent the 2008 banking crisis or handle it properly,” Mr Lilley said.
The Committee said the substantial new powers proposed for the Bank of England should be matched by greater accountability to Parliament and the public.
The report included a recommendation that the role of the PRA should be widened to cover activities such as the UK operations of MF Global, the recently failed US futures broker, which would be beyond its supervision should the draft go ahead in current form.
The Committee also said the UK must be free to set higher capital requirements for banks than the EU required, given the importance of banking to the UK economy. The Government will decide whether to amend the draft before presenting the bill to Parliament next spring.
The criticism of the Chancellor’s plans comes as the National Audit Office confirmed it is to examine the controversial sale of the state-owned bank Northern Rock.
The Treasury said it sold the bank to Sir Richard Branson’s Virgin Money for £747m, implying a loss to the taxpayer of at least £400m. However, the public spending watchdog said its role was restricted to a review of a completed sale and that it could not intervene in the sale process.
telegraph.co.uk
The Joint Committee on the Draft Financial Services Bill has said the Government must rethink its proposed structural reforms or risk a damaging repeat of history.
The critical report, which is due to be published today, suggests the Coalition has missed the point on some of the key issues involved, not least failing to clarify who would be in charge should a problem in the system occur – a confusion which aggravated the last crisis.
Peter Lilley, Conservative MP and chairman of the committee, said the Chancellor and not the Bank of England should “take charge” in any situation which might result in the need for public money.
“It is vital that, if the taxpayer might be liable for costs to save a financial institution, the Chancellor is given early warning of any such risk and then automatically assumes responsibility for handling that situation,” he said. “It is the Chancellor who is responsible to Parliament and the public, and decisions of that nature must rest with him.”
The joint committee said there was a risk of repeating the failure of the previous tripartite regulatory system, which split responsibility three ways between the Treasury, the Bank of England and the Financial Services Authority but was found lacking when the crisis took hold.
It said the division of power and responsibility between the three new organisations the legislation creates – the Financial Policy Committee, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority – was still unclear.It called for an end to the “fuzzy allocation of responsibilities”, which ultimately led to failure in 2008.
“The previous system of financial regulation failed to prevent the 2008 banking crisis or handle it properly,” Mr Lilley said.
The Committee said the substantial new powers proposed for the Bank of England should be matched by greater accountability to Parliament and the public.
The report included a recommendation that the role of the PRA should be widened to cover activities such as the UK operations of MF Global, the recently failed US futures broker, which would be beyond its supervision should the draft go ahead in current form.
The Committee also said the UK must be free to set higher capital requirements for banks than the EU required, given the importance of banking to the UK economy. The Government will decide whether to amend the draft before presenting the bill to Parliament next spring.
The criticism of the Chancellor’s plans comes as the National Audit Office confirmed it is to examine the controversial sale of the state-owned bank Northern Rock.
The Treasury said it sold the bank to Sir Richard Branson’s Virgin Money for £747m, implying a loss to the taxpayer of at least £400m. However, the public spending watchdog said its role was restricted to a review of a completed sale and that it could not intervene in the sale process.
telegraph.co.uk
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