Conservatives would scrap financial watchdog

By Adrian Croft

LONDON (Reuters) - Britain's Financial Services Authority (FSA) regulator should be abolished and the Bank of England put in full charge of supervising financial institutions, the Conservatives said on Monday.

The proposals contrast with government plans to entrench the current tripartite system under which responsibility is shared between the FSA, the Bank and the Treasury and risk undermining the regulator with an election due within a year.

The Conservatives, who are tipped to win the election, say the existing system ignored problems that contributed to the credit crunch, forcing the government to spend billions bailing out some of the country's biggest banks.

"We will abolish the Financial Services Authority and the failed tripartite system and give the Bank of England the responsibility for maintaining financial stability and the tools to do it," opposition finance spokesman George Osborne said.

"We will give the Bank responsibility for the prudential regulation of all of our banks, all of our building societies and other significant financial institutions including insurance companies," he added in a speech.

"Crucially this will bring together the operation of monetary policy with the regulation of the banking system."

Finance minister Alistair Darling this month proposed setting up a Council for Financial Stability to coordinate the work of the three groups. The tripartite structure was set up 12 years ago when Labour came to power and when Prime Minister Gordon Brown was the finance minister.

Responsibility for financial market regulation has caused tension between Darling and Bank of England Governor Mervyn King, who has said that the Bank lacked the tools to intervene if a bank ran into trouble.