The UK’s opposition Conservative Party says it will effectively scrap the country’s current financial regulator, the Financial Services Authority, and transfer banking supervision powers back to the Bank of England, media reports said.

George Osborne, shadow finance minister, is proposing to tear up the system set up 12 years ago by former finance minister and current prime minister, Gordon Brown. Under Mr Osborne’s proposals, the FSA will be transformed into a consumer protection body, with its substantive bank oversight powers given to the BoE.

In 1997, much of the BoE’s old banking regulatory power was shifted to the FSA, a newly created body. As part of the-then changes, the central bank was given operational independence in setting interest rates. Widely praised at the time, the move has subsequently come under fire after the FSA was criticised for not acting quickly enough to deal with crises such as the demise of Northern Rock, the UK mortgage lender.

Around the world, governments have been looking to reform regulatory systems to prevent a repeat of the recent financial crisis, although the financial services industry, including wealth management, has voiced worries that changes may simply add to costs and cause unintended side effects.

Mr Osborne revealed some of his ideas in an interview with the Financial Times; his comments were also aired in media reports yesterday.

A Conservative government would give a “strong and powerful” bank the job of supervising banks, he was quoted by the FT as saying.

Mr Osborne described as “paranoia” suspicions in government that the Tories have grown too close to Mervyn King, current BoE governor.

Mr Osborne would reform the BoE, including creating a financial policy committee with outside experts. It would be given tools to protect the financial system, including the power to set a “backstop” leverage ratio, new liquidity requirements and counter-cyclical capital ratios.

Big banks with retail and investment arms would not be broken up – Mr Osborne admits that Britain could only act if other countries did the same – but they would have to hold more capital to reflect the fact that they benefit from an implicit taxpayer guarantee, he said.