Lawyers wonder what effect the Financial Services Bill will have on London's standing

For all the practical good it will do, it seems that the greatest significance of the new Financial Services Bill is in illustrating the current state of the increasingly ill-tempered policy debate over how to reform and monitor banks. Since the summer there has been growing evidence that banks are driving towards – and increasingly lobbying for – a return to business as usual, while politicians are responding to mounting anger from the public over the excesses of the City.

The Bill would appear to be about being seen to do something, as everyone knows next year's general election is likely to reverse many of the key policies in the legislation. As it stands the Bill would hand the Financial Services Authority (FSA) a seat on the Council for Financial Stability, the proposed body set to monitor systemic risk in the banking sector and ensure co-operation between the FSA, Government and Bank of England.

More controversially, the Bill would give the FSA powers to intervene in bankers' pay and void contracts that encourage excessive risk-taking, as well as formalise long-awaited powers to legitimately crack down on short-selling. The FSA would also see its information-gathering powers extended to hedge funds and other non-regulated firms and gain the ability to force banks to create 'living wills', making it easier for them to be wound down in the event of future failure without excessive burdens on taxpayers.

Most of these measures have both strong supporters and detractors, but the debate remains somewhat surreal given the differences in opinion between the Conservatives and Labour and the likelihood of a Conservative election victory next year. Official policy from the opposition means many measures will be reversed, with the Conservatives already publicly committed to abolishing the FSA in its current form and transferring most of its powers to the Bank of England. Denton Wilde Sapte's Robert Finney says: "It's a moot point whether this Bill will actually get passed into law before the election – I think it'll be a struggle."

Cynicism aside, there are broader concerns about the legislation. In particular, partners are worried about the extended time the FSA will have to investigate individuals, with time set to double to four years, leaving people with investigations hanging over them and affecting job prospects. Even if it is unlikely the Bill will become implemented in anything like its current form, lawyers are watching closely to see if it shapes the debate over regulating banks and bankers' pay – an issue that isn't going to go away. Most notably, the proposed powers on ripping up individual bankers' contracts promise fascinating – and potentially lucrative – work for lawyers.

This is all well and good for regulatory lawyers, but for transactional counsel the underlying worry is that this acrimony and uncertainty hanging over the City will impact on London's status as a global financial centre. As one magic circle banking partner comments: "We'll have to wait and see how this pans out politically. For the time being the main impact is likely to be less liquidity and more caution, which will stop deal activity."

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