FSA survives after Lib-Con compromise

THE FINANCIAL Services Authority (FSA) was given a stay of execution yesterday, after the Tories had to scrap plans to disband the watchdog under a deal brokered with their Liberal Democrat coalition partners.

Chancellor George Osborne was preparing to wind down the FSA, dividing its responsibilities between the Bank of England and a handful of new agencies. But while the Bank will assume ultimate responsibility for macro-prudential regulation, the FSA will continue to oversee individual financial institutions.

A new committee chaired by Bank governor Mervyn King will be set up, with the power to instruct the FSA if it sees too much risk building up in the system. The chief executive of the FSA will also sit on the committee, alongside a slate of independent members.

Business secretary Vince Cable was implacably opposed to Osborne’s plans to disband the FSA, believing it would lead to massive upheaval at a crucial time for financial regulation.

“There would have been a lot of people worrying about their jobs instead of actually doing them,” said a source close to the negotiations.

The deal represents a climb-down for Osborne, who consistently argued that an overhaul of the tripartite regulatory system was an essential step in rebuilding the banking system.

Robert Finney, head of financial regulation at Denton Wilde Sapte, said: “The Conservatives have found a face-saving way to exit their unpopular and ill-conceived plan to close the FSA, while making significant changes to prudential regulation.”

Now the future of the FSA is certain, there is likely to be renewed interest in the top job that will become vacant when Hector Sants steps down in the summer. Internal candidates include managing directors Sally Dewar and Jon Paine.