Bank of England proposals to overhaul its governing body as it prepares to receive broad new powers are inadequate and would hide officials from proper public scrutiny, an influential parliamentary panel said on Monday.
The central bank is poised to become the most powerful financial regulator under new laws drawn up by the coalition government to help avoid a repeat of the credit crisis of 2007-08.
Parliament's Treasury Select Committee, a cross-party group of lawmakers which monitors the Bank and finance ministry, wants the central bank to reform its antiquated governing board, the Court of the Bank of England.
The bank's existing proposals to tighten its internal governance and improve accountability don't go far enough, the lawmakers said in a report.
The Bank's proposed new Oversight Committee would be held back by a narrow remit and could not be relied upon to provide adequate scrutiny, they said.
The bank's proposed remedy ... falls well short of what is required, said Andrew Tyrie, the lawmaker who chairs the Treasury committee. The bank needs a proper board -- fit for the 21st century.
It is understandable that people don't rush to embrace more meaningful and intrusive supervision of their activities. But in a public body with these powers, it is essential.
The Bank will house the new Financial Policy Committee - in charge of macro-prudential regulation to prevent failures of the banking system as a whole - as well as a new bank regulator, the Prudential Regulatory Authority.
The legitimacy of the bank's decisions rests on it being fully accountable and required to explain itself in parliament, Tyrie added.
A new supervisory board should have the power to examine the merits of the bank's policy decisions and conduct internal reviews of its operations.
The Treasury committee also raised concerns that the finance minister and government could be sidelined by the Bank during any future financial crisis that threatens public money.
It must be written into law that the finance minister would have the power to take the lead role in a crisis as soon as he is told by the central bank that public cash is at risk, the report added. The Bank wants those powers to be outlined in a memorandum, rather than be put on the statute books.
(The finance minister) must have a general power to direct the Bank when public funds are at risk, the committee said.
The government expects to publish the proposed regulatory reforms in its Financial Services Bill at the end of this month.
(Reporting by Peter Griffiths; Editing by Hans-Juergen Peters)