A NEW Banking Act planned for the UK could offer benefits for the island, the Guernsey Financial Services Commission has said.
Chancellor Alistair Darling is planning the new legislation for later this year and it is understood the act will strengthen the role of the Financial Services Authority.
The Financial Times reported last week that Mr Darling wanted to give the FSA a new statutory objective of maintaining financial stability, making it partly responsible for a function currently entrusted to the Bank of England.
Mr Darling believes the City watchdog should be responsible not just for regulating individual banks, but for ensuring that the combined impact of their business models is not dangerous to the system.
GFSC director general Nik van Leuven (pictured) said it was difficult to know at this stage what precisely was being proposed.
‘The Bank of England already has responsibilities for financial stability through the tripartite arrangements, so we will have to wait and see whether the balance of responsibility for financial stability between the Bank of England and the FSA is in any way changed,’ he said.
The Bank of England was given responsibility for financial stability in 1997 but the Treasury’s view is that it did not do enough to warn of the build-up of credit before last year’s banking collapse.
The new act would make it easier for the FSA to order a bank to change if it considered it was destabilising the system.
However, Mr van Leuven said he believed the GFSC already had enough powers to do this locally if it felt it was necessary.
‘In our view there could well be indirect benefit to Guernsey by making UK banks operating here perform more prudently and become less prone to destabilising banking models, for example, like the pre-nationalised Northern Rock plc had become,’ he said.
‘On the limited information available, if the proposal makes the FSA more pro-active rather than reactive towards UK banks then that can only be seen as a good thing.
‘As to whether there should be something similar in Guernsey, we suggest that our existing functions and powers are wide enough to enable us to address banks which would appear to have a destabilising effect on financial markets.
‘The consensus view after the banking crisis of 2008 was that offshore financial centres were not a significant source of instability: the root causes of the crisis were in the banking models of the big banks in the larger jurisdictions.’‘Our existing functions and powers are wide enough to enable us to address banks which would appear to have a destabilising effect on financial markets’
GFSC’s Nik van Leuven
Article posted on 30th June, 2009 - 2.30pm
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