In a speech today, Alistair Darling, the UK Chancellor of the Exchequer, provided an outline of his efforts to impose new regulations on Britain’s financial sector. The Chancellor stated that he had previously instructed the Financial Services Authority to implement to strengthen the regulatory regime and increase the intensity of supervision. In response, he stated that the FSA is currently implementing rules that will:

  • Strengthen rules to ensure banks hold enough capital as a buffer against losses, with higher standards for banks that pose the greatest risk to the financial system
  • Introduce a "backstop power" to ensure banks do not "overextend themselves"
  • Increase the FSA’s focus on bank liquidity

The Chancellor also stated that he intends to introduce legislation that will give the FSA broad authority and responsibility over Britain’s financial stability, including the authority to:

  • Create appropriate rules to address different risks in individual banks
  • Increase penalties and enforcement power to respond to misconduct
  • To address developments in the financial sector, with increased regulation if needed

The Chancellor will also seek to create a Council for Financial Stability that would include the Bank of England, the FSA and the Treasury to monitor system-wide financial stability and respond to long-term risks as they emerge. However, the Chancellor rejected the notion that large banks should be splitting up or that the integration of retail and investment banking should be limited. This, according to the Chancellor, “is a simplistic solution, and fails to take into account the complexity of today’s financial system.”