Tories are right to want to scrap the FSA

Allister Heath
SO the Tories are going to bite the bullet and abolish the Financial Services Authority (FSA). Most of its banking and financial stability powers will be handed over to the Bank of England; the rump, focussing on consumer protection, will be relabelled as the Consumer Protection Agency. The Bank will become home to a new financial policy committee (FPC) for prudential supervision; this will mirror the monetary policy committee (MPC), include external members, be led by a third deputy governor and chaired by Mervyn King, the Bank&rsquo;s increasingly powerful governor.<br /><br />We knew that change would be coming; but that is substantially more radical than expected and a welcome move from the Tories. It would be good to see regulators paying for their failures for once, rather than having their staffing, budgets and wages increased, as is usually the case (though of course the Bank, which also got it wrong, is being rewarded, but that is another story). The disgracefully dysfunctional tripartite system, under which responsibility for economic and financial management was shared between the Treasury, the Bank of England and the FSA, will be history. The Tories are clearly planning a thorough destruction of one of Gordon Brown&rsquo;s central reforms; total war is about to break out in Westminster, spilling over to <br />Threadneedle Street, Canary Wharf and Whitehall. <br /><br />All of this will pose a crucial challenge to King, the great winner from this proposed reform. He has said he didn&rsquo;t want to grab control of the FSA&rsquo;s main powers and responsibilities; he will now have to eat his words. Lord Adair Turner and other top staff at the FSA are facing a problem of a very different kind; some are likely to start looking for new jobs. Already, as we report on P1, the FSA has been finding it tough to recruit. And that was even before potential staff found out just how radical the Tories intend to be. Osborne must explain exactly what bits of the FSA will be transferred to the <br />Bank, how many job cuts are to be expected and give as much detail as possible to ensure a semblance of normality until the election.<br /><br />Turner has been lionised by the government and the media, with his recent report held up as the fount of all wisdom (though not by this newspaper); but the Tories never forgave the man they privately (and jokingly) call &ldquo;Red Adair&rdquo; for helping to orchestrate a crucial rapprochement between business and the Labour party during his tenure as the CBI&rsquo;s director general between 1995-1999. And although he sits as an independent in the House of Lords, Turner was a member of Tony Blair&rsquo;s Forward Strategy Unit, chaired the low pay commission and in 2005 produced a report calling for a compulsory pensions scheme with contributions from employees and employers. Like many other senior figures that rose to the top during the Blair-Brown years, Turner will probably soon move back to the private sector.<br /><br />The Tories have ditched their half-baked plan to introduce a UK version of the infamous Glass-Steagall Act, which banned US retail and commercial banks from owning investment banks, and vice-versa. Many of today&rsquo;s other Tory policies will mirror those outlined by the government, Turner, the FSA and last week&rsquo;s Walker report. As ever, the devil will be in the details; I will further analyse the Tory plans tomorrow.<br />