A Government White Paper published in July 2009 acknowledged that a new approach
was needed to tackling global systemic risks but that this would be undertaken using
the current institutional framework with “the FSA responsible for conduct of business
and prudential regulation for all financial services firms” and “the Bank of England
responsible for financial stability”.
This framework would be “strengthened further through increased powers for the Bank
and FSA, better co-ordination between them, and strengthened governance and greater
Whether this will be the pattern for the future hinges on the result of the next
general election due in 2010. While the present Government envisages a system based
on the status quo, the Conservative Party envisage a shift of power back to the
Bank of England.
What should be remembered is that the Bank of England’s regulatory record is not
without blemish. The Bank was the regulatory authority when both BCCI and Barings
hit problems. What neither party will want to see is the introduction of a regulatory
system that kills the golden egg.
There is always a fine line between policing the financial system on the one hand
and allowing innovation to continue on the other hand.
There is, however, a case for regulation to be more international in tone. Of all
industries, the financial sector is probably the most global and also carries the
most risk to the global economy if it breaks down.
It is difficult for any domestic regulatory authority to police large multinational
banks and financial institutions. International co-operation is a must.