Britain has announced the most sweeping overhaul in over a decade of the way it regulates its financial services sector, giving greater protection to customers including those using payday lenders.
The draft financial services bill makes it clear that if taxpayer funds are at risk in a crisis, the chancellor of the exchequer has the power to act unilaterally.
The legislation, as widely expected, creates several bodies, including a Financial Conduct Authority to look after markets and consumer interests, but which will also have a mandate “to promote effective competition in financial services in the interests of consumers”.
The FCA will take over responsibility for oversight of consumer credit from the Office of Fair Trading.
The legislation will also create a Prudential Regulation Authority to oversee the conduct of banks and a Financial Policy Committee to oversee control of systemic risks.
However, it falls short of what had been urged by the Treasury Select Committee for the independence of the Bank of England, under whose authority all the new bodies will operate.
Rather than replacing its Court, the Bank will create a Supervisory Committee made up of non-executive members of its Court.
The new body, however, will have the power to review not only processes through which policy decisions are reached - a measure urged by the Bank that sought to limit oversight over it - but the wisdom of the policies.
In a summary of the legislation, the Treasury said the bill was along the lines of the structure recommended by the Treasury Select Committee, which was critical of the weak response to a run on deposits at Northern Rock when Alistair Darling, then chancellor, did not appear to have the authority to take control.
In a statement accompanying the legislation, the Treasury said its aim was “to ensure that parliament and the public are in no doubt that the chancellor is in charge when decisions are being made about whether and how to spend public money in a future financial crisis”.
It added: “We also want to provide greater protection to customers, so we will toughen up the regulation of consumer credit, including services such as ‘payday loans’, by bringing them within the remit of the new Financial Conduct Authority.”
Chancellor George Osborne, speaking from the World Economic Forum in Davos, said: “I hope that we will never again see the paralysis and confusion that did so much damage when the latest crisis hit.’’