Osborne wins Square Mile’s quiet approval

CITY figures cautiously welcomed chancellor George Osborne’s decision to restore financial regulation to the Bank of England last night, but urged him to think carefully about the shift.

Osborne said oversight of UK-based high street lenders, investment banks, building societies and insurers would be the responsibility of a new body under the control of the BoE by 2012. “What we are proposing is a new system of regulation that learns the lessons of the greatest banking crisis in our lifetime,” Osborne said.

Tom Dolan, a partner at law firm Pinsent Masons, said the two-year hiatus period before regulatory power passes from the Financial Services Authority to Threadneedle Street could cause problems.

He said: “One really hopes the FSA’s staff do not become too preoccupied with what their position will be in the new regime and they do not lose their focus… It will also be very interesting to see whether the FSA can continue to attract all the new talent it requires given the uncertainty staff may face.”

Nathan Willmott, a partner at Berwin Leighton Paisner, questioned the government’s decision to launch such a radical overhaul of the system “at this particularly difficult time in the economic cycle. 2012 looks like a very optimistic deadline for implementing such significant changes.”

Angela Knight, chief executive of the British Bankers’ Association, which represents institutions such as Credit Suisse and NM Rothschild, said the industry supported Osborne’s move to simplify regulation. “The industry will work with the government to ensure transition between regulatory authorities does not cause disruption to the financial system and is implemented swiftly and well.”

Richard Lambert of the CBI said the coalition government was posing the right questions in the wake of the banking crisis. “The sooner these issues can be resolved the better,” he said. But Unite the Union accused the chancellor of wasting time with “rhetoric”.