As widely expected, the UK’s new Chancellor of the Exchequer, George Osborne, has announced plans to give the Bank of England the key role in regulating the UK financial sector. In his first Mansion House speech, Mr Osborne said he would abolish the current system of financial regulation. The Financial Services Authority (FSA) will "cease to exist in its current form", he told the City of London.

But he also revealed that Hector Sants, the chief executive of the FSA, would stay on to oversee the transition. Mr Sants will become the first new deputy governor of the Bank and chief executive of the new "prudential regulator" charged with regulating banks and other financial institutions. Andrew Bailey, currently chief cashier at the Bank of England, will become his deputy in the new regulator.

Mr Osborne said the new coalition government was proposing a new system of regulation that "learns the lessons of the greatest banking crisis in our lifetime".

The FSA will be broken up and the part that monitors financial institutions would continue as a "new prudential regulator" but would operate as a full subsidiary of the Bank of England. The parts that are supposed to protect consumers and crack down on crime will be injected respectively into a new Consumer Protection Agency and an Economic Crime Agency.

Mr Osborne, who added that the government would create a powerful new Financial Policy Committee at the Bank of England, said that the process of reforming the regulatory system would be completed by 2012.
The Chancellor also confirmed that the government would introduce a bank levy and "demand further restraint on pay and bonuses". Bank of England Governor, Mervyn King, welcomed the new powers given to the Bank by the new government.

"Monetary stability and financial stability are two sides of the same coin. During the crisis the former was threatened by the failure to secure the latter," Mr King said in his speech, which followed the chancellor's.