In a new research paper released today, the Institute of Economic Affairs argues the coalition’s proposals on financial reform will do little to improve the quality of financial regulation in the UK.
The coalition is proposing to abolish the FSA and reallocate its functions between a series of new quangos and the Bank of England. Instead “Does Britain need a financial regulator?” (authored by Philip Booth and Terry Arthur) suggests the regulation of investment markets, financial products, insurance companies and other financial institutions, currently carried out by the FSA and the Pensions’ Regulator, should be stopped and these sectors should instead be allowed to self-regulate within a framework of limited primary legislation.
Only banks linked to the payments system should be regulated and this should be done by the Bank of England. Instead of the coalition’s levy on banks, banks should provide the capital needed for the central bank to run a risk-based deposit insurance scheme.
In summary, the paper argues that a central regulator is the wrong model to generate appropriate rules and regulations for the financial sector. The FSA should be abolished, along with almost all its functions.
Philip Booth, Editorial Director at the IEA and author of the report, “Does Britain need a financial regulator?” said:
“The market mechanism is enough to guarantee effective regulation: the number of financial scandals has not reduced in the era of statutory, bureaucratic regulation. Other than in the case of banks dependent on the Bank of England for deposit insurance and lender of last resort facilities, the financial system should be left to self-regulate.”
“If the coalition genuinely wants to create better regulation in the financial sector, along with more competition and cheaper capital for companies, they should scrap the FSA and the vast majority of its functions and leave the financial sector to itself as far as possible.”
Statutory regulation of