In a letter to Economic Secretary to the Treasury Mark Hoban, seen by Out-Law.com, outgoing BBA chief executive Angela Knight said that consultation arrangements which would allow the industry to provide feedback to the new Prudential Regulation Authority (PRA) within the Bank of England when changes to the regulatory regime are proposed were insufficient.
The PRA should, she said, make firm commitments to ensure that its consultations are "accessible and targeted at the interested parties... also there being an expectation of at least one 12 week consultation period for significant requirements".
It should also agree to consult "in respect of the exercise of any national discretions arising from agreed EU policy" in order to avoid unnecessary duplication of rules.
"A point that seems to have been overlooked is that good discipline around consultation contributes to better decision making and a better, shared understanding of the practical issues involved in potential implementation options," the letter said.
The draft Financial Services Bill will dismantle the FSA and hand most of the day-to-day regulation of and supervision of banks, building societies and insurers to the PRA which will be based within the Bank of England. A new Financial Policy Committee (FPC), also within the Bank, will address wider 'macro-prudential' issues that may threaten economic and financial stability, while a new Financial Conduct Authority (FCA) will handle conduct and compliance issues. It will also take over consumer credit regulation, including the responsibility for so-called 'payday loans', from consumer protection regulator the Office of Fair Trading (OFT).
Knight suggested that the Government re-examine the Memorandums of Understanding (MoU) setting out how the bodies will work together, and with other relevant regulators such as the OFT, where their activities overlap.
In particular a "much firmer, detailed commitment" was needed in respect of the relationship between the FCA and the Financial Ombudsman Service (FOS), which handles individual consumer complaints against financial institutions, she said. The FOS should, she said, be given an "unambiguous role focused on the individual cases arising under its responsibility for providing an alternative disputes resolution service".
Under the MoU on crisis management, the Bank of England must notify the Treasury of a potential risk to public funds. However, Knight said that the PRA's responsibilities should be made clearer due to the joint role of the Governor of the Bank of England as both chairman of the PRA and head of the Bank.
"The MoU therefore would benefit from close inspection to ensure that there is clarity over who should be held to account by Parliament for the separate actions that will be taken as part of crisis management under the new regulatory structure," she said.
She added that, if any bail-in arrangement was necessary as a result of the Chancellor using his powers of direction over the bank, it should be made clearer that "creditors will be no worse off than if the institution had been taken into insolvency," as was the case for the banks that received public money during the last financial crisis.
Knight added that the new arrangements, as laid out in the draft Financial Services Bill, were a "considerable weakening" from the proposals as originally consulted.
"Changes in the provisions for practitioner panels, with the FCA given greater scope in terms of the individuals who may be appointed to panels, and the very obligation on the part of the PRA to appoint a panel has been removed," she said. "Moreover the existing obligation for the authority to give a statement in writing to a Panel where it disagrees with a view expressed has been removed."