Darling Unveils Regulatory Reform Proposals For Finance Sector

by Ulrika Lomas, Tax-News.com, Brussels

24 July 2009

UK Chancellor Alistair Darling has unveiled plans to reform financial markets in an attempt to avoid a repeat of the ongoing economic crisis in the future.

In a recent speech to MPs on the release of a new White Paper, 'Reforming Financial Markets', the Chancellor observed that

"The world economy has been hit by a severe financial crisis, resulting in the worst economic downturn for well over 60 years. Its origins lie in failures in the banking system around the world."

"Financial institutions in many countries took on too much risk. They became over-reliant on wholesale funding, too exposed to particular products. And irresponsible pay practices made banks take unnecessary risks. It is also clear that some financial institutions had little appreciation of what was going on inside their businesses."

"But regulators and governments too must learn from the events of the last two years – better understanding the risks that come from rapid globalisation in the financial system."

The Chancellor pledged to strengthen the current system of tripartite regulation, where responsibility for regulating the finance sector is shared between the Financial Services Authority, the Bank of England and the Treasury, proposing the creation of a new Council for Financial Stability.

He explained that:

"This will not just to deal with immediate issues, but also monitor system-wide financial stability and respond to long-term risks as they emerge. This needs to be done on a formal statutory basis."

"The Council will draw on the expertise of the FSA and the Bank, who are and will remain independent of Government, by looking at their regular reports – the Financial Stability Report and Financial Risk Outlook – and formally responding to their recommendations. That way when risks or threats to stability are identified they will be addressed."

He additionally pledged to provide the regulatory bodies, especially the FSA, with tougher enforcement powers, and stressed the importance of taking a wider view of the finance industry, and of the global context in which regulatory decisions are made.

Increasing depositor protection measures, and enforcement in that area was also flagged up by Chancellor Darling as a priority area.

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