THE regulation of British banks has – to say the least – been in the spotlight since the financial crisis, with the tripartite system coming in for serious criticism. The government says that it wants to change the arrangement and create a Council for Financial Stability, which will co-ordinate the responsibilities and actions of the Bank of England, the FSA and the Treasury.
Will the UK miraculously become more stable upon the creation of the council? It is very unlikely. The Bank of England, FSA and Treasury already meet on a regular basis as a standing committee to discuss financial stability measures.
The Council certainly has a formal-sounding ring to it, but what will it really do that is new and inventive? The answer seems to be surprisingly little. The aim is to replace the current Memorandum of Understanding (MOU) between the three parties, with new terms of reference for the council.
The original Treasury consultation document heralded the arrival of the council and said that it would give “greater transparency over proceedings”. It boldly declared that the “minutes of the standing meetings of the CFS will be published.” Later in the document, however, is the revelation that “it is likely that… a significant proportion of the council’s minutes will not be suitable for publication”. So could they not simply redact some of the minutes of the current standing committee which refer to sensitive information and perhaps issue a press release?
I would suggest that the creation of the new council will create yet another level of bureaucracy. It is worth considering that one of the four guiding principles in the MOU is the avoidance of duplication. The UK members of the Financial Stability Board for example are (wait for it) the Bank of England, the FSA and HM Treasury.
Although the creation of the Council can be rightly criticised – as can the failure of the bill to embrace more of the recommendations of the Walker Review – some of the proposals should be embraced, such as the requirement that the FSA work to develop international standards of regulation. Whether the bill will find its way onto the statute books before the looming general election is another matter. So why build a new (and most likely expensive) castle out of sand which may well fall into the sea?
Philip Henson is a partner and head of employment law at law firm Bargate Murray