Hoban keen to improve competition

By Brooke Masters, Chief Regulation Correspondent

Published: February 16 2011 22:34 | Last updated: February 16 2011 23:50

Corridor of power: Mark Hoban wants better choices for consumers

The new UK consumer and markets regulator will have a remit to increase and foster competition within banking and other financial services as a way of improving market efficiency and consumer confidence.

Newly renamed the Financial Conduct Authority, the watchdog will be spun out of the Financial Services Authority in late 2012 as part of the coalition government’s plan to revamp bank and markets regulation in the wake of the financial crisis.

“One of the best ways of achieving better choices for consumers, whether wholesale or retail, is by having a competitive marketplace,” said Mark Hoban, financial secretary to the Treasury.

By contrast, the FSA’s mission statement before the financial crisis included an objective of promoting the UK’s competitiveness versus other global centres.

Internal competition inquiries have traditionally been the purview of the Office of Fair Trading but the Treasury is considering giving the FCA joint jurisdiction.

The FCA will be headed by Martin Wheatley, currently a Hong Kong regulator.

The issue was to be discussed on Thursday as the Treasury unveils more details of its revamp plans.

The government is also expected to spell out the specific objectives and roles of the Financial Policy Committee, which will monitor and rein in systemic risk, and the Prudential Regulatory Authority, which will oversee banks and insurers for safety and soundness.

Mr Hoban expects the PRA, which will be headed by Hector Sants, current FSA chief executive, to take a much more activist approach to supervising banks than the FSA did before the crisis.

“One of our concerns has been that intervention has been left too late. The PRA should be acting earlier” to make banks safer by ordering them to hold more capital or otherwise change the way they do business, Mr Hoban said.

The FPC, meanwhile, will be given powers to prick credit bubbles and will also be expected to identify emerging threats in the “shadow banking sector” – the netherworld of financial institutions that act like banks but are not as heavily regulated.

“One of the flaws of the previous system was a rigidness about regulatory boundaries … The FPC would say, ‘We think these things should be [regulated by] the PRA or the FCA,’” said Mr Hoban.

The FPC will be similar in structure to the monetary policy committee that sets interest rates.

The Treasury plans to unveil a transitional committee with seven members drawn from the Bank of England and the FSA, two non-voting representatives and four external members who were to be announced on Thursday.

The UK’s new financial regulators will also be subject to a watchdog of their own to make sure they offer “value for money”, Mr Hoban said.

The National Audit Office will be given the power to examine and report on the efficiency and effectiveness of the various financial regulators.

Currently, the FSA is industry-funded and largely independent of oversight beyond its own board.

In recent years, its budget has risen rapidly as it strengthened its enforcement division and began supervising banks more closely.

Some industry groups have complained that the costs have not been fairly allocated and argued that large banks that were at the centre of the financial crisis should be paying a larger share.

Thursday’s consultation will be followed by a pre-legislative scrutiny process later this year.

The government hopes to pass legislation in 2012 and have the new structure in place by the end of that year.