FSA warns on ill-timed regulatory change

LONDON (Reuters) - The financial regulator said on Monday ill-timed reforms to the country's regulatory system could create new problems and risk losing lessons learnt over the past two years.

The tripartite system of regulation -- which splits responsibilities between the Financial Services Authority, the Bank of England and the Treasury -- is widely seen to have failed in the run-up to the credit crisis.

The government is due to propose legislation to turn the tripartite set-up into a council on financial stability.

"I can assure you, simply drawing the line elsewhere will only create another set of problems," FSA Chief Executive Hector Sants said in a speech.

"More generally, there remains the possibility of tougher times to come for those we regulate. Now is not the time therefore to be diverting resource to looking at 'structural questions'."

He said the debate on institutional change should take account of the lessons learnt by the FSA, itself set up just under a decade ago: "Society must not lost the benefits of the tough, hard learning experience the FSA has been through."

Under plans from the opposition Conservative party published this July, the FSA would be scrapped altogether, with the Bank of England put in full change of supervising financial firms.

Speaking in London's financial district, Sants also warned banks and other financial firms must take responsibility for their role in the global crisis and change their behaviour, if a tougher, post-recession supervisory regime is to succeed.

"There remains, I believe, an absence of the acceptance of collective responsibility for what has happened," he said.