Financial Policy Committee members announced as plans to allow regulators to name firms under investigation are criticised
Plans to hand the new City regulator powers to name the companies it is investigating have been attacked as the government announced the first members of another powerful new regulatory body that will have unprecedented scope to prevent the economy from overheating.
The Financial Policy Committee, which was originally intended to have been set up by the end of last year, will be given an economic "toolkit" that may allow it to force banks to hold more capital or more liquid assets during times of crisis. It may also be empowered to set limits on the size of loans that can be granted relative to a borrower's income.
The FPC will include the main regulators but also four external members, who were named on Thursday as Alastair Clark, Michael Cohrs, Donald Kohn and Sir Richard Lambert. Clark is a former Bank of England employee, Cohrs a former investment banker, Kohn a former US regulator and Lambert a former Financial Times editor and ex-director general of the CBI.
The consultation document, published on Thursday also sets out the framework for the new Prudential Regulatory Authority and consumer watchdog being spun out of the Financial Services Authority, which will close in 2013. The Treasury confirmed that the Consumer Protection and Markets Authority will be renamed the Financial Conduct Authority and have the power to ban products and prevent their sale.
"The government will therefore legislate to give the FCA a new power to direct a firm to withdraw or amend misleading financial promotions with immediate effect, and to publish the fact that it has done so," the government said.
However, proposals to grant it the ability to warn potential customers that a firm is being investigated for potential wrongdoing proved controversial. Steven Francis, a regulatory partner at the City law firm Reynolds Porter Chamberlain, said: "By pre-emptively informing a firm's clients of its investigation, the new regulator could do serious damage to the firm's reputation and business. The FSA regularly commences investigations that lead to no disciplinary outcome. The firm either satisfies the FSA there has been no wrongdoing, or the FSA simply gets it wrong."
The PRA, to be headed by FSA chief executive Hector Sants, will authorise and supervise all banks, building societies, credit unions and insurers, sitting within the Bank of England. The FCA will have a remit to protect and enhance confidence in the UK financial system and oversee about 18,500 regulated UK firms that do not fall under the PRA.
There was also concern that none of the regulatory bodies being created would replicate the requirement Labour set the FSA of overseeing London's competitiveness. Peter Vipond, director of regulation and tax at the Association of British Insurers, said: "We are concerned that so far none of the bodies will have a statutory objective to maintain London's competitiveness as a global financial sector – this is too valuable a prize to be thrown away."