FSA Assumes Regulation of Banks Customer Contact but for How Long?

by Karl Hindle – London UK

The FSA assumes responsibility for regulating Britain's High Street banks and their customer relationships on Monday, 2nd November.

The link to the FSA announcement is here

The FSA remit includes regulating the sale of banking products including direct debits (a form of regular, variable bill payment in the UK), instant access and savers' accounts as well as notifications to customers such as interest rate changes. High Street banks must now provide full disclosure at point of sale to customers on exactly how a product works rather than providing a summary of features and benefits.

This may seem all pretty minor stuff except, the idea that the FSA should have anything to do with regulating high street banks is viewed as a definite encroachment by the FSA upon the Bank of England's territory. With the Banking Act 2009 further widening FSA regulatory responsibility for High Street banks, there is a clear-cut schism between the in-office Labour left and the favourites for the next election, the right-wing Conservatives.

If Labour win the next election, the FSA can be expected to expand, many believe, into the UK's “Super Regulator”, but if the Conservatives win, they have pledged to abolish the FSA entirely and devolve its functions elsewhere.

This development comes just as Number 11 Downing Street, the home of the British Chancellor of the Exchequer, Alistair Darling announced a major shake-up in how Britain's High Street will look with a number of new, smaller banks being introduced amidst the break-up of larger ones which have sought refuge under the British government's bail-out umbrella.

It is expected that there will be three new UK High Street banks introduced and a spate of other financial entities as a consequence of the repackaging and sale of Government banking assets acquired during the recent turmoil. One old name will be revived in Williams & Glynn, which has its origins on Threadneedle Street but which disappeared when it was gobbled up by NatWest while Trustee Savings Bank (TSB) will also make a reappearance.

The FSA stepping into the banking realm may be short-lived depending on the result of the next British elections which are looming ever closer. The right-wing Conservatives have pledged to dismantle the FSA and Shadow Chancellor, George Osborne confirmed this last week in a meeting with FSA staff members.

Election fever has not yet gripped the UK – news media outlets are surprisingly muted on the issue as to when an election will be called (in the UK, the ruling party has the option of when to call an election as long as it is within its term of office). There is widespread consensus that Prime Minister Gordon Brown will not retain leadership of the Labour Party and is unlikely to win the next election in any event, so expect the incumbents to run until the last moment before the election is called.

It is not simply the relatively minor issue of bank/customer relationship regulation by the FSA, but the outcome of the political cat fight which will determine the picture of the UK regulatory regime. In the interim, the two main regulators, the FSA and Bank of England, are marking regulatory time and concentrating on positioning themselves for what may follow.