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New British finance secretary looks set to reform finance authority

04 June 2010 01:53 (UTC +04:00)

Baku-APA. New British chancellor of the exchequer George Osborne looks set to announce this month radical changes in the regulation of the financial sector which would see greater powers given to the countryâ€™s central bank, according to a report of the Guardian on Thursday, APA reports quoting Xinhua News Agency.

The paper quoted government sources as saying that Osborne would use a speech in the middle of the month to announce extended powers for the Bank of England (BoE), Britainâ€™s central bank, which would be shifted from the current regulatory body the Financial Services Authority (FSA).

The paperâ€™s report was bolstered on Thursday evening by a speech in Belgium by the Financial Secretary to the Treasury Mark Hoban who confirmed that the BoE was likely to get more powers.

Hoban said: "To improve the regulation and supervision of the sector we will give control of macro prudential regulation, with oversight powers of micro decisions, to the Bank of England. "This will enable better monitoring of systemic risk and more effective regulatory interventions with an eye to not just individual firms, but sectors and markets as a whole."

Supervision of banks had been part of the BoEâ€™s remit until 1997 when the then incoming chancellor Gordon Brown removed those duties.

The desire to return them to the BoE comes in the wake of the financial crisis, to which Britain was more exposed than other nations because of the strong role the finance sector plays in the national economy.

Hoban also underlined this viewpoint in his speech, "We recognise the power of free markets to serve the real economy, we equally recognise that the self-serving nature of these markets - if left unchecked - can leave households and businesses bearing the cost of high-risk strategies.

"Hindsight shows us with 20:20 clarity that the system was skewed in favour of excessive risk taking, we will bring this back into balance, towards the people and businesses these markets are ultimately supposed to serve."

However the future of the FSA under these plans remain uncertain, with the Guardian reporting that Osborneâ€™s aides refused to comment if it was going to be closed or not. Despite making clear that the regulatory powers would go to the BoE, Hoban in his speech also failed to make clear what the future of the FSA would be.

The return of the powers to the BoE was included in the coalition agreement between the Conservative party and the Liberal Democrat party which outlines the government policy.

It was also included in the Queenâ€™s speech to the Houses of Parliament last week in which government policy for the coming parliamentary term was outlined.

Osborne looks set to use one of the traditional events of the financial world, the chancellorâ€™s Mansion House speech in the City of London to provide more details about the plan. The speech is set for June 16, just six days before Osborne again takes center stage with an emergency budget which will define government spending targets, policies and cuts for the next few years.