End of the road for the FSA

Lawyers have given a mixed reaction to Chancellor George Osborne’s decision to abolish the Financial Services Authority (FSA) and transfer regulatory powers to the Bank of England.

In his first Mansion House speech since taking up office last month, Osborne said the FSA would “cease to exist in its current form”. Hector Sants, FSA chief executive, will oversee the transfer of its regulatory powers over financial institutions to the Bank of England. The FSA’s consumer protection functions will be transferred to a new Consumer Protection Agency and an Economic Crime Agency.

An independent banking commission, chaired by former head of the Office of Fair Trading John Vickers, will spend the next year reviewing whether investment banks should be split from deposit-taking banks.

The reforms are scheduled for completion in 2012. Further details were due to be announced to Parliament this week.

Mathew Rutter, financial services partner at law firm Beachcroft LLP, says: “The proposal to give the Bank of England overall control makes sense. The existing structure has been shown to be weak on macro-prudential regulation and the FSA has shown little appetite for taking on that role. So something has to change at the top to prevent the same problems happening again.

“Some of the senior figures at the FSA—those who haven’t resigned already—probably won’t be too keen on working for the Consumer Protection Agency. We’re already beginning to sense something of a strategic hiatus at the FSA, and if this continues it will be damaging.

“However, the truth is that many of the regulatory decisions will be made in Europe in the future, so even without these reforms, power was always going to move away from the FSA. You could say that the diminished role for the FSA is simply a reflection of this new reality.”