FSA to become Bank of England subsidiary

The FSA is to become a subsidiary of the Bank of England with a separate Consumer Protection Agency set up to regulate IFAs.

Chancellor George Osborne is set to reveal the restructure in his first Mansion House speech this Wednesday, according to a blog from the BBC’s business editor Robert Peston.

Peston says the Chancellor is also set to announce the separation of the FSA’s consumer protection activities into a new body called the Consumer Protection Agency, as proposed by the Conservative Party before the election. The CPA would oversee regulation of IFAs.

The FSA's enforcement activities are also set to be hived off to create a new Economic Crime Agency.

These reforms will mean that the part of the FSA that monitors banks, insurers and other financial institutions will become part of the Bank of England, though the existing FSA board is expected to remain in place.

The Bank of England will also set up a new Financial Policy Committee made up of executives from the Bank of England and senior representatives from the FSA.

The committee will be responsible for maintaining financial stability, and will use macro-prudential tools to prevent banks from offering credit when the economy overheats.

It had been thought that the FSA’s regulatory role would be retained following the coalition Government’s Programme for government document, which made no mention of plans for the FSA.

Despite the Conservatives long-held ambition to dismantle the FSA and hand power back to the Bank of England, the coalition’s Programme for government only referred to plans to “give the Bank of England control of macro-prudential regulation and oversight of micro-prudential regulation.” This was widely interpreted to mean that the FSA would be preserved.

Handing control back to the Bank of England would see a reversal of Gordon Brown’s decision in 1997 to take banking supervision from the Bank of England and merge it with other City regulatory bodies to set up the FSA.