Anybody analysing the future of financial regulation in the UK just a month ago could have been forgiven for giving the fortunes of the Liberal Democrats in the upcoming election little more than a cursory mention

Image: Your vote will go some way to deciding who oversees financial regulation in the UK

Now, against a backdrop of ubiquitous coverage, scandals and with many of the first postal votes being cast, the polls tell a different story. The Conservatives still seem the most likely of the three parties to gain a working majority, but only just, and a hung parliament looks a decent bet.

The final result will be key to the way the vast world of finance is governed in the UK.

This is because the role of the Financial Services Authority (FSA) going forward is wholly dependent on which party is voted into government and which leader is cast into 10 Downing Street.

The prospects of the regulator, which is part of a system that sees power to govern the financial services industry split between the watchdog, the Bank of England and the Treasury, has been unclear since it was perceived as weak in its actions before, during and after the financial crisis.

Its action, or lack thereof, in the run up to the Northern Rock crisis has been put under particular scrutiny, with even an internal review on its handling of the collapse of customers’ confidence in the provider judging its actions to be inadequate.

Subsequent criticism for its ‘light touch approach’ demanded action and the FSA has looked to appear a tougher proposition in recent times, a strategy characterised by a number of recent arrests and the announcement that it is to begin an investigation into Goldman Sachs.

But is it too little, too late?

It certainly will be if the Conservative Party wins an outright majority. The party has clearly defined its plans for the FSA, saying that the organisation has been part of a ‘failed regulatory regime’ and has pledged to scrap it, instead handing powers back to the Bank of England.

The separate roles of monitoring the health of the economy, pinpointing and acting on risks, while also overseeing failing institutions, and representing consumers’ interest would be given to newly formed regulators.

Labour would keep the watchdog and has pledged to make the FSA responsible for the regulation of all mortgages, by transferring second charge loans into the watchdog’s remit. All unsecured lending activity will also be overseen by the FSA, while responsibility for consumer finance will be taken by a new, single regulator.

And what of the Liberal Democrats, who have engineered a charge up the opinion polls that has added genuine intrigue into an election that had threatened to turn into something of a procession?

In February, Shadow Chancellor Vince Cable said that the FSA had an important part to play in effecting ‘far reaching and lasting change,’ while lambasting Conservative proposals as ‘creating uncertainty for an organisation that has a vital role to play.’

Should a hung parliament made up of the Liberal Democrats and Labour come into force, it seems likely that the FSA will be given a stay of execution, as would be the case if Gordon Brown staged a comeback that saw his party win a working majority.

However, a coalition between the Liberal Democrats and the Conservatives would leave the regulator’s future far more uncertain, and the possibility of the FSA being scrapped while the larger banks are broken up – a key economic policy of Vince Cable’s – has been cited by commentators.

Whatever the result, it is clear that the result of the 2010 general election will be integral to the make up of financial regulation in the UK for the foreseeable future.

James Henderson, Reporter, Moneyfacts Group

The Financial Services Authority (FSA) has told all firms still selling single premium payment protection insurance (PPI) with unsecured personal loans to withdraw such products by 29 May. The move comes after an inquiry by the Competition Commission recommended the sale of single premium PPI be prohibited after 1 October 2010. A number of major banks have already decided to stop selling the product, with some firm's opting to offer regular premium PPI instead.

"We believe that PPI can play an important and legitimate role to cover repayments on specific credit agreements for consumers facing job loss, or other issues at this difficult time," wrote Jon Pain, the FSA's managing director of retail markets, in a letter to firm's chief executives. "However, our focus remains on how this product has been, and continues to be, sold and whether consumers have been treated fairly during the sales process."

The deputy chairman of the Financial Services Authority and former chief executive of HBOS, Sir James Crosby, has announced his resignation. His departure follows evidence unveiled as part of Tuesday's Treasury Select Committee session into the banking crisis. During the inquiry it emerged that Paul Moore, former head of group regulatory risk at HBOS, tried to alert Crosby to the fact that HBOS was growing too fast too quickly, back in 2004. However Sir James, who was at the helm of HBOS from 2001 to 2006, claimed there was no substance to the allegations.

"I nonetheless feel that the right course of action for the FSA is for me to resign from the FSA board, which I do with immediate effect," he added. The FSA said: "The specific allegations made by Paul Moore in December 2004 regarding the regulatory risk function at HBOS were fully investigated by KPMG and the FSA, which concluded that the changes made by HBOS were appropriate."

The Financial Services Authority (FSA), has warned the UK's recession may be longer and deeper than expected anticipated. It believes that ongoing issues in the financial sector, in particular the lack of credit available, are jeopardising chances of economic recovery. The FSA stated that risks to the UK economy were weighted to the downside and, while the effects of the fiscal stimulus and monetary easing remained unclear, the recession might be deeper and more prolonged than expected. The comments were contained in the FSA's Financial Risk Outlook which was published yesterday. The report also claimed there was a danger of the economy slipping into a "self-reinforcing deflationary cycle," where a lack of lending forces house prices, consumer spending and business profits down, and unemployment and defaults up. It added that businesses and consumers must plan for a "greater degree of uncertainty than normal".