When turkeys start voting for Christmas, something is amiss. That is something the new Government should (but won't) reflect on as it this week issues further detail on its controversial shake-up of City regulation. Because, as made clear in our recent focus on financial regulation, even legal specialists in the field – who stand to benefit financially from the sustained upheaval – don't believe in the Government's attempt to redraw the tripartite regulatory architecture.

If anything, this week's consultation document makes the Government's case that the poor response to the banking crisis was directly due to the regulatory framework look even less convincing. As Sullivan & Cromwell's Rodgin Cohen observed: "Substantive regulation is far more important than the frameworks which enforce it. If you look around the world, there is no correlation between regulatory structure and where the crisis struck most severely."

For advisers dealing with the Financial Services Authority (FSA) there is little doubt about what contributed to its pre-crunch failings: the regulator showed too little rigour and too much willingness to bend to industry pressure. Having reversed that stance since Northern Rock's collapse, it is now widely viewed as having become a much more effective watchdog.

And it's not as if the structural clarity of current attempts to redraw the map of City regulation is compelling. The Government's model involves the hindsight-driven concept of splitting 'prudential regulation', which will reside with the Bank of England, from 'conduct regulation', the rump of the FSA which will be reborn as the new Consumer Protection and Markets Authority.

Yet this is a fairly arbitrary distinction used to justify a shake-up of the existing model. You can easily make a case that 'micro-prudential' regulation (a big chunk of the FSA) should sit with market conduct regulation (another big chunk of the FSA). Indeed, it is the consumer protection brief that looks an odd fit.

True, there is one obvious improvement being proposed: the strengthening of the Bank of England. Who could argue with the Government's observation that it was a fault of the system to leave the Bank of England with responsibility to police market risk but no tools to act? But this is one reform that could be enacted without restructuring the FSA.

For most lawyers, the solution to this 'underlap' of the regulatory framework is simple: beef up the Bank of England's role in market risk and hard-wire in reporting lines from the FSA through to Threadneedle Street. Such evolution of the existing model must be preferable to the huge upheaval that now awaits an industry already braced for a stream of international initiatives. Instead, we have what can only be viewed as an ideologically-driven reversal of one of Labour's (better) signature policies. Though it promises to be very good for business, it's an underwhelming start for City lawyers hoping for better from the new Government.

Click here for Legal Week's in depth financial regulation feature.

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