The part of the UK’s Financial Services Authority which supervises the stability of the financial system is likely to become a subsidiary of the Bank of England, according to the BBC. This change, if enacted into law, will give the BoE power over banking industry mergers and acquisitions and give it more tools to control the economy.

Unlike the current, 13-year-old tripartite system – which the new finance minister George Osborne has frequently criticised for lacking accountability – this arrangement would place the responsibility for the stability of the financial system squarely with the Bank of England. However, as a separate legal entity, the FSA would retain its own board, the report notes.

The recently formed Conservative/Liberal Democrat coalition government has been expected to shake up the regulatory landscape in the UK following criticism of the FSA for having not acted quickly enough to spot potential problems in the banking system. For example, the FSA has been criticised for not acting sooner over the near-collapse of UK mortgage lender Northern Rock.

It is also expected that a new Financial Policy Committee will be created within the BoE, consisting of bank executives and senior representatives from the FSA with direct responsibility for financial stability, according to the news service. 

The committee is likely to have what the report terms “macro-prudential tools” to cool emerging asset bubbles, where they are identified, by discouraging bank lending.

This committee would also have power over the new financial supervision subsidiary (the legacy of the FSA), and would decide whether and under which conditions large mergers and acquisitions within the banking industry could go ahead.

Meanwhile, the consumer protection activities of the FSA would be separated into a new Consumer Protection Agency, and its enforcement work would take place in the form of a new Economic Crime Agency.

In other related news, the head of risk at the FSA, Sally Dewar, has announced she is stepping down as she feels it is “the right time” to do so.

The FSA has also recently mounted a series of high-profile cases against alleged insider dealers and other financial miscreants, seen as part of a move by the watchdog to crack down more severely on such behaviour.