UK’s FSA to Propose Overhaul of Global Bank Regulation

By | March 18, 2009

Britain’s Financial Services Authority (FSA) will publish Wednesday a blueprint for a shake-up of global banking regulations aimed at preventing a recurrence of the financial crisis weighing down the world economy.

The report, commissioned by British Prime Minister Gordon Brown at the height of the banking crisis last October, is likely to shape discussions at next month’s summit meeting between leaders of the G20 countries.

Analysts say its key recommendations could include an increase in banks’ minimum capital requirements, as well as closer regulation of hedge funds.

The report, authored by FSA Chairman Adair Turner, is expected to underscore the watchdog’s determination to adopt a tougher stance in the wake of the banking crisis, abandoning its tradition of “light touch” supervision.

The BBC said Turner would also unveil proposals to stop banks lending too much during boom years and would seek to restrict the ability of banks to take excessive risks.

The broadcaster also said a proposal to form a new pan- European body would be mooted, to set standards for other regulators to follow.

The first indication of this step-change came last week when FSA Chief Executive Hector Sants said in a speech to financial services executives at Thomson Reuters London offices that they should be “very frightened” of the regulator.

Legal experts warn any tightening of the FSA regime could trigger an exodus of leading banks away from the City of London unless it forms part of a coordinated international clampdown.

“The problem for the FSA is that the industry is global, but the FSA is local,” said Bob Penn, a partner at law firm Allen & Overy’s financial services practice.

“This circle can only be squared by international agreement on the future of the regulation of wholesale markets, otherwise we can expect a drift of international banks away from London to less toughly regulated jurisdictions

Turner, a former director general of the Confederation of British Industry (CBI), who from 2000 to 2006 was Vice Chairman of Merrill Lynch Europe, is also chairman of the British government’s Climate Change Committee.

His report will also shape Britain’s response to a slew of new European Union rules on hedge funds, private equity, bank capital and cross-border supervision that will be drafted and adopted by the UK and other member states over the coming year.

(Additional reporting by Huw Jones; Editing by David Cowell and Andre Grenon)

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