Speech by the Financial Secretary to the Treasury, Mark Hoban MP, at Reform

Speech by the Financial Secretary to the Treasury.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Mark Hoban


Thank you.

It’s a great pleasure to be here this morning… to have this opportunity to discuss our new regulatory regime, and how this will shape the future of financial services in Britain.

In seven short months we’ve come a long way.

We’ve restored confidence in the strength of our economy and the stability of our financial services sector.

Led the international debate on regulatory reform.

And set out our plans for creating a financial sector that better meets the needs of the people and the businesses our country relies on.

We need a strong financial sector.  One that supports the wider economy; creates wealth; and one that remains a global centre of expertise and innovation.

Yes, to a large extent, the financial sector will plot its own future.

But as a government, we will ensure that growth in financial services is sustainable, where the focus is on the longer-term, and decisions are based a sound understanding of risk versus reward.

I know this is quite a challenge.

But the benefits are substantial.

Because if you want a successful economy; strong growth; and a more prosperous society, you need a stable financial sector.  One that helps finance investment; has the confidence of consumers; and is a successful industry, employer and source of prosperity in its own right

Domestic regulatory reform

On the domestic front, it’s clear that the regulatory foundations laid by the previous administration were tried, and found to be wanting.

During the crisis - as the pressure began to mount - cracks rapidly spread, exposing the structural flaws underpinning our economy.  And the taxpayer was forced to intervene, to prop up the financial system, and prevent total collapse.

This is a situation we simply can’t afford to repeat.

So we’re is putting in place a new regulatory architecture - one that will ensure all regulation of the financial system is effectively coordinated

For starters, we’re doing away with the failed tripartite system - where responsibility for the financial system was diluted across the Bank of England, the Financial Services Authority, and the Treasury.

It was a model that contained a number of inherent weaknesses.

First, it placed responsibility for all financial regulation in the hands of a single regulator - the FSA. 

Its dual mandate - supervising the safety and soundness of firms while regulating the relationship between companies and their customers - led to a loss of focus.

And second, the tripartite regime gave the Bank of England partial responsibility for financial stability, but it lacked the tools to do tackle the problems it identified.

In essence, there was a lack of clear focus and a lack of responsibility.  But regulatory structure was only one part of the problem.   

Too much emphasis was placed on ticking the right boxes and filling in the right forms, as opposed to actual analysis of risk.  Most worryingly, the old system prevented the regulatory authorities from exercising their own judgement - their hands we’re tied in bureaucratic knots.

So we’re condemning this arbitrary approach the history books…

…and taking forward reforms that will give supervisors more discretion to use their own judgement, their own expertise. 

As when tackling the challenges posed by individual firms and particular products, a one-size-fits-all approach doesn’t work for such a diverse and complex sector.

So we will create a single, dedicated, macro-prudential supervisor.  One that will ensure that any risks developing across the economy are identified and dealt with.

This supervisor will be the Financial Policy Committee (FPC) - who will sit in the Bank of England and have responsibility for maintaining financial stability across the financial system. 

And at a more micro level, we’re setting up the Prudential Regulatory Authority - as an independent subsidiary of the Bank - with responsibility for prudential regulation of individual deposit takers and insurers.

By bringing together micro and macro-prudential regulation within the Bank we will improve the coordination and coherence of financial stability.

In turn, this will ensure that growth is sustainable, and not built on the back of assets that can barely hold their own weight, let along the weight of the economy.

Consumer protection and markets regulation

But that’s not the end of the story.

If we’re to improve sustainability and resilience across the economy, we need to safeguard the interests of savers and borrowers.

Despite the good work of the FSA, I don’t believe customers get a fair deal from financial services.

Personal banking has become, well, less personal.

People have lost trust in the system.

Basic things, like having interest rates on statements, offering the right advice, and always acting in the customers’ interests have - to a certain extent - become lost in a culture that focused too much on short-term profits…
A culture which forgot that sustainable profitability is based on putting the customer first.

We’re committed to changing this.

Alongside a more secure regulatory base, we need a financial sector that works for consumers - one that earns their confidence, competes for their services, and keeps them properly informed.

That’s why we’re setting up the new Consumer Protection and Markets Authority - or CPMA for short. 

The CPMA will look at the conduct of all authorised firms - whether they’re prudentially regulated or not.  It will be, in effect, a champion for the consumer, with the the primary objective of “ensuring confidence in financial services”.

And to offer further protection, the Financial Services Compensation Scheme limit is planned to rise from the current £50,000 to £85,000 from the 31st December - covering around 99% of all savers.

Alongside our regulatory reforms, this will help ensure depositor protection and stability is placed at the heart of the financial system.  If customers and investors have effective and appropriate protection, they’ll also have more trust in financial sector as a whole.

But the CPMA alone is not enough. 

We will also increase consumer confidence by making markets more transparent - where people can shop around for better rates on their ISAs and have access to financial advice through the Annual Financial Health- Check.

So consumers will have the confidence to invest in a wider range of products, and this will feed through to the rest of the economy.

Because a customer who buys a corporate bond is also providing the finance needed to support innovation.

Money in a cash ISA can support lending to businesses and families. 

While money in an equity ISA or pension can help support private investment.

Working in the interests of customers is working in the interests of the wider economy.  The two are mutually reinforcing.

European regulation

So that’s what we’re doing on the domestic front to restore stability and trust to the financial sector. 

But we’re not working alone, or in isolation.

In Europe, the Commission is taking forward its own programme of reform… and as Europe’s financial capital, it’s vitally important that we engage is this debate.

There’s a lot to be said about the success of the single market. It has supported competition, promoted transparency, and opened its borders to new business - driving economic growth across the region. 

But there’s also the other side of the coin…

…where the EU is increasingly setting the legal framework for financial regulation and, therefore, our global competitiveness will be heavily influenced by Europe’s own agenda.

Yes, EU regulation can support competitive and open markets… but at the same time we have to ensure that new regulation remains proportionate - that we avoid knee-jerk reactions as a result of the crisis.

That’s the message I’ve been taking to the EU negotiating table… and it’s an approach that’s been rather successful.

If we look, for example, at the recent alternative investment fund managers directive.  This directive threatened to create a closed European market for hedge funds and other alternative investment options.

Avoiding this was particularly important for us, as Europe’s leading provider of alternative investments.  We wanted to see a more open market.

In the space of just a few short months, we negotiated a complete reversal of Council’s position. 

Rather than seeing fund managers from outside of the EU frozen out, they will be able to trade in Europe as well.  From my point of view, this is of huge significance. 
It will introduce greater competition, open up new markets, and create new investment opportunities for London and the rest of Britain’s financial sector.  

Most importantly, however, the EU has signaled that it’s open for business and will not close its borders or restrict the free movement of capital. 

But while important, in the greater scheme of things this is only one small victory… there’s still many more directives just over the horizon.

So we want to work with the sector to identify ways we can improve the functioning of European markets, foster competition, and raise international standards to match our own. 

This process has already started through the City’s International Regulatory Strategy Group.  Yet importantly, we need the industry to engage across Europe: with trade organisations, other companies and foreign governments.

As no one should be in any doubt of Europe’s mercurial nature: Europe is an ongoing soap opera, with a complex plot, that’s rewritten on an almost daily basis.  If you don’t become an avid viewer, you risk losing the thread entirely. 

And don’t believe that once a story has petered out, it won’t be resurrected.  Whilst we may think that Peggy Mitchell left Walford for the final time earlier this year, we know from experience that, just as the Queen Vic has been raised from the ashes, so too might Peggy return. 

So we must continue to work with our European neighbours… to promote common minimum standards, create a stable financial system, and help support growth across Member States.


We’ve taken decisive action at both home and abroad to shape the new regulatory framework; to strengthen supervision; and ensure there’s a real focus on what matters to taxpayers, businesses and families.

By 2012 we’ll have a completely new system of financial supervision.

We’ll have a financial sector that’s more in touch with the needs of its consumers.

And - if all goes well - we’ll have a European regulatory framework that promotes competition; ensures stability; and increases transparency.

Because we need a strong financial sector.

One that provides the lending essential for investment.

Restores trust and confidence in our economy.

And helps drive future growth and prosperity.

It’s in our wider economic interests to have a safer, more secure and more resilient financial sector. 

To drive the economic recovery; to meet the needs of business; and to act in the interests of the British consumer.

Thank you.

Published 1 December 2010