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Plans to reform the financial system were recently announced by the UK government. The move is designed to prevent future financial crises.

According to Chancellor Alistair Darling, the measures are a “significant toughening up of the regulatory system” in order to “learn the lesson of what went wrong… and make sure we reduce those risks”.

However, many experts say that the Government White Paper leaves questions regarding the role of regulators still to be answered. The Liberal Democrats criticised the plans as unlikely to go far enough.

The Government has already invested more than £1 trillion to bail out failing UK banks. In order to curb bank lending, new powers will be proposed to prevent the mistakes of the past few years that have left so many people facing debt problems, from happening again.

Implementing “macro-prudential” regulation is set to be the key issue in the White Paper. This form of regulation aims to ensure that the entire banking system is protected from collapse, preventing the need for further individual bank bailouts.

There is also the question of whether banks should be regulated in order to restrict their growth into the conglomerates that many experts say pose a risk to the financial system at large. This massive unchecked growth of the multinational banking groups is another important issue that needs to be tackled, but is unlikely to be dealt with by the White Paper.

Head of the British Bankers’ Association, Angela Knight, has said that caution should be adopted by the Government as rash decisions could have a negative effect on the current recession.

Further discussion on the details of the proposals is required, and any legislation needs to be organised in tandem with the financial services industry and international regulators. Due to the complexity of the proposals, and the number of incorporated parties, only a limited number of policies in the White Paper will be put forward in parliament this term.

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