Brown surprises the Commons

Chancellor introduces SIB

Brown: most effective regulator "in the world"

Radical Shake-Up Of Financial Services Announced

In a statement to the Commons, Mr Brown said City institutions would no longer be allowed to regulate themselves. Instead, a new, more powerful Securities and Investment Board, (SIB), will have sole responsibility for overseeing the investment, insurance and banking industries.

The near-collapse of Lloyds insurance market, the fall of banks like Barings and BCCI, and the scandals of the Maxwell and personal pension mis-selling episodes all prompted the Chancellor to act.

The head of the new SIB will be deputy governor of the Bank of England Howard Davies, the former Director-General of the Confederation of British Industry.

Chancellor with a reforming zeal

It will mean responsibility for the supervision of banks currently held by the Bank of England will pass to the new body.

The scale of the reforms will require at least two pieces of legislation. The first steps towards a single regulatory body will come under the aegis of the Bank of England Bill, the measure originally designed to introduce operational independence over monetary policy for the Bank.

But a second Bill will also be required to complete the changes, probably within the current session in spite of the heavy weight of legislation it will imply.

"The current system of self-regulation will be replaced by a new and fully statutory system, which will put the public interest first, and increase public confidence in the system," Mr Brown told the Commons.

"I am confident that the new arrangements, taken together, will enhance significantly the credibility of UK monetary policy and improve the workings of the financial markets," he added. "That means lower long-term interest rates and higher growth and investment."

Clarke: Policy on the hoof

"Undue haste"

"It has long been apparent that the regulatory structure introduced by the Financial Services Act 1986 is not delivering the standard of supervision and investor protection that the industry and the public have a right to expect," said Mr Brown.

"Reform is long overdue to simplify the delivery of financial service regulation. Work would start immediately on legislation to reform the regulatory system at an early opportunity," he continued. A simpler system would "reduce compliance costs and increase public confidence in the regulatory regime".

But Shadow Chancellor Kenneth Clarke attacked Mr Brown for failing to consult, failing to trail his major announcements in Labour's manifesto and during the election campaign and of acting with undue haste.

"Could you please stop acting like a Chancellor in a desperate hurry?" he said. "Could he please stop acting as if he was making policy on the hoof as he did in Opposition?"