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What have we learned from the banking crisis which hit the UK?

As the dust starts to settle on the banking crisis which engulfed the UK we are entering a time of reflection when the government and regulators are looking to change the regulatory system. However, after last night's Mansion house speech it would appear that there is still substantial division between the UK government, the Bank of England and the Financial Services Authority (FSA) with regards to how future regulation of the UK financial markets should be handled.

As we covered in one of our earlier post, Mervyn King, the Gov of the Bank of England, has made a strong play for further powers to be transferred to the Bank of England, probably at the expense of the FSA. This is at complete loggerheads with the UK government's recent comments and suggestions that the FSA should be "beefed up" and given more power to control and penalise financial institutions which take undue risk and put the sector as a whole at risk.

One of the strengths of the London financial market, and perhaps the main reason why it is so powerful in the worldwide financial market, is the fact that "self-regulation" has been a central focal point of the regulatory system. If the UK government was to take this away completely we could see the emergence of significant competition in overseas markets, with the EU looking to grab control of London as soon as possible, and London could well lose its mantle as one of the more popular and influential financial markets in the world.

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