UK regulator lays down blueprint for reform

Britain's main financial regulator yesterday launched a bold attempt to seize the initiative in the debate over the future of financial regulation.

The long-awaited review from Lord Turner, chairman of the Financial Services Authority, is probably the most comprehensive attempt yet to set out a detailed blueprint for regulatory reform in the wake of the financial crisis.

Though the FSA's authority is limited to the UK, Lord Turner's report sets out possible responses to a host of international issues, ranging from the appropriate level of capital for banks, changes to accounting standards and the role of credit rating agencies, and the level of pan-European regulation required to preserve a functioning single European market for financial services.

Lord Turner also spelled out the FSA's intention to broaden the scope of regulation to include hedge funds and other entities that posed systemic risks. “If an activity looks like a bank and sounds like a bank, we have to regulate it like a bank,” he said.

The timing of the 120-page report is no coincidence. Published just a fortnight before the G20 group of developed and developing nations are due to meet in London to discuss the response to the crisis, it represents an attempt by Britain to frame the debate over future financial regulation.

However, it is also a recognition of the FSA's inability to act independently in many of these areas. For example, banking regulations will be drawn up by the Basel Committee on Banking Supervision, while the Financial Stability Forum will be responsible for co-ordinating the oversight of large multinational banks.

Most striking, however, is Lord Turner's support for the creation of a new European Union financial body to focus on cross-border supervision and standard-setting. The FSA has long been opposed to the idea of pan-European regulation.