07 February 2012

Speech by the Financial Secretary to the UK Treasury, Mark Hoban MP, at City Week

Hoban said that to remain the world's leading financial services centre and attract the most ambitious and innovative financial services companies, it is essential to reform regulation, safeguarding an innovative and successful financial services sector without putting the wider economy at risk.

Strength and importance of UK financial sector

To strengthen the financial system for the future, there is a need to build a platform from which the UK can build on its world leading strengths. A financial services sector that originates more cross-border bank lending than any other country, home to Europe’s largest Insurance industry, and the world’s largest foreign exchange market.

British dilemma

How can we create a successful but stable financial services sector? How can we preserve the innovation that fuels the sector’s success without putting the wider economy at risk? The answer to the British dilemma is to build a strong and proportionate regulatory regime.

Reforms to the regulatory architecture

The new Prudential Regulatory Authority, an independent subsidiary of the Bank, will take responsibility for micro-prudential regulation. And a new Financial Policy Committee, sitting within the Bank, will monitor risks across the financial system. Its purpose will be to identify bubbles as they develop, spot dangerous interconnections across the system, and stop excessive levels of leverage before it’s too late.

International regulation and open markets

Ensuring that internationally-agreed regulatory standards are implemented fully and consistently at national level.  And ensuring that regulation protects the open and competitive markets that are critical to fostering renewed growth across all our economies.

G20 agreement

Full, consistent and non-discriminatory implementation of these agreements is essential to ensure the stability of the international financial system, but also to protect free and open competition that allows all our sectors to thrive.

Basel III and CRD IV

CRD IV must embed high, common and consistently-applied standards for capital, liquidity and leverage if it is to succeed in embedding greater stability, reducing fiscal risk and protecting a single, unfragmented EU market in financial services. At the same time, jurisdictions must retain the right to apply higher levels of regulation to ensure financial stability in their own markets. This is particularly important for countries like the UK that are home to large global financial centres.

GSIFIs

To tackle the issue of too big to fail means applying additional loss absorbency requirements:

• developing international consistent Recovery and Resolution Plans that will require firms to take early action to generate capital and liquidity in stress...
• and ensuring that supervisors have the tools and powers to intervene early and ensure an orderly resolution where a bank does fail.

ICB

As well as supporting these international efforts, the UK has also taken steps to improve bank resolvability and address too big to fail through the Independent Commission on Banking.

International and European regulation

It is absolutely vital that the global regulatory framework be strengthened in a way that balances stability with the maintenance of global markets, sustaining economic growth.

Full speech

© HM Treasury