Council of regulators led by chancellor to monitor risks to the financial system

<!--StartFragment--> A NEW Council for Financial Stability (CFS), composed of representatives from the tripartite authorities, will be handed responsibility for monitoring emerging risks in the financial system, chancellor Alistair Darling announced yesterday.<br /><br />The CFS, to be chaired by Darling himself, will see figures from the Treasury, Bank of England and FSA meet regularly to discuss and respond to key publications such as the Bank&rsquo;s Financial Stability Reports and the FSA&rsquo;s Financial Risk Outlooks.<br /><br />Minutes from the meetings will be published quarterly in the interests of transparency, the Treasury said, although it will retain the right to hold back records it deems &ldquo;market sensitive&rdquo;.<br /><br />The CFS will also meet in the event of a fast-developing financial emergency in order to intervene and resolve emerging threats.<br /><br />The Treasury said the CFS would make remuneration the key subject of its first meeting, at which it will assess FSA findings on the risks presented by compensation strategies.<br /><br />An additional role will be to discuss UK authorities&rsquo; reaction to EU efforts on financial stability and regulatory policy.<br /><br />The full composition of the CFS is not yet known, but will include the heads of the three regulatory authorities, as well as significant representation from the Bank of England&rsquo;s own Financial Stability Committee.<br /><br />The government will discuss ways to make the committee accountable, including parliamentary scrutiny.<br /><br />Shadow chancellor George Osborne immediately attacked the idea, ridiculing the chancellor for creating a new body to do what he said was already the responsibility of the tripartite authorities.<br /><br /><strong>FSCS TO BE PRE-FUNDED<br /></strong>The Financial Services Compensation Scheme (FSCS) is to be pre-funded by banks, to ensure that depositors have swift access to their funds when a financial institution collapses.<br /><br />The Treasury wants the cost of funding the FSCS to be &ldquo;spread over time&rdquo;, with banks required to &ldquo;pay for the benefits they receive from the existence of a compensation scheme at a time closer to&hellip;when they enjoy those benefits&rdquo;. At the moment, the Treasury is lending money to the FSCS.<br /><br />Pre-funding will not be introduced until 2012, to allow a smooth transition and avoid hitting banks struggling amid the recession. The initial levy will also be set at a relatively low level at first, to avoid compromising financial stability or undermining efforts to strengthen the banking system.<br /><br />However, CBI director-general Richard Lambert yesterday criticised the plan as &ldquo;misguided&rdquo;. &ldquo;The first priority for banks must be to rebuild their own balance sheets,&rdquo; he said. &ldquo;Pre-funding of the deposit guarantee scheme from 2012 will hamper this. It is also an inefficient use of capital and will be bad for the economy at a time when banks should be lending to businesses,&rdquo; he added.<br /><br /><strong>PROTECTION FOR CONSUMERS<br /></strong>Consumers will be afforded greater financial protection under the government&rsquo;s proposals for reform of financial regulation, including a new independent consumer education and information body to be funded by a levy on banks.<br /><br />Chancellor Alistair Darling believes one of the key causes of the financial crisis was a lack of understanding of financial products by customers and will erect a new body, funded by FSA-regulated firms, to enhance consumer education.<br /><br />Under the proposals, the government will expand a pilot scheme already operating into a national money guidance service, offering impartial advice to financial consumers from spring 2010.<br /><br />Financial products will be stamped with warnings similar to those on cigarette packets, warning consumers of the possible dangers to their finances from risky mortgages and bank accounts. The proposal is intended to increase competition in the market by better educating consumers about the choices available to them.<br /><br />The government will also move to speed up and improve the way that financial institutions deal with customer complaints, such as disputed overdraft charges. <!--EndFragment-->