Nicholas Durlacher Esq CBE*
Chairman
Securities and Futures Authority
Cottons Centre
Cottons Lane 
London SE1 2QB                             20 May 1997






The Chancellor has today announced fundamental changes to the
institutional framework which in future will deliver financial
regulation and supervision. A copy of the Chancellor's statement
is enclosed.

2.   Responsibility for banking supervision will, at the earliest
opportunity, be transferred from the Bank of England to the
Securities and Investments Board. The transfer will be effected
under the Bank of England Bill which will also take through the
legislation to enact the monetary policy changes announced by the
Chancellor two weeks ago. The Treasury, the Bank and the SIB will
work closely together over the coming months on the details of
the transfer.

3.   This will be an important step in the establishment of a
single regulatory body to oversee all the financial markets and
to bring the regulatory structure much closer to the way in which
today's commercial markets and companies are organised and
managed on an integrated basis.

4.   The Chancellor also announced that work will start
immediately on drafting a Bill to amend the Financial Services
Act. The Bill will deliver the Government's manifesto commitment
to give the Securities and Investments Board direct
responsibility for the regulatory regime covered by the 1986 Act.
It will do so principally by transferring to it all the functions
of the SROs, so establishing the SIB as the single financial
services regulator, with full responsibility and accountability.
I am attaching a copy of the letter that the Chancellor has today
sent to Sir Andrew Large, setting out in greater detail the
Government's intentions on reform of financial services
regulation.

5.   In view of the importance of the task ahead, the Chancellor
has asked Howard Davies, the Deputy Governor of the Bank, to be
the first Chairman of the enhanced Securities and Investments
Board responsible for integrating the supervision of banking and
financial services. He is already a member of the SIB Board and
will take over as Chairman when Sir Andrew steps down at the end
of July.

6.   The purpose of all these changes is to reform the
institutional architecture by which financial supervision is
delivered. They will bring regulation and supervision much
closer to the changing structure of the financial industry
itself, introduce clearer responsibilities and accountability,
and reduce the current complexity for customers, investors and
industry whilst at the same time reducing compliance costs to
the benefit of all. The gains to be achieved are substantial.

7.   I am conscious of the amount of work that needs to be
undertaken to enable these reforms are to be introduced as
effectively and smoothly as possible. I have asked the SIB to
lead the work on the reform of financial services supervision,
working closely with the SROs and consulting widely on the
details of implementation. Substantial progress has been
achieved in the standards of supervision by the SROs over the
past ten years which will need to be retained and built upon
in the new structure. I would emphasise that we have no
intention of throwing all supervisory techniques, procedures
and requirements into the melting pot and starting afresh.
There is much that is good in the way that financial services
are supervised which must be retained. But we will wish to
adopt, across the whole sector, the highest standards and best
practice. We will not accept the compromise of the lowest
common denominator, and neither will the SIB.

8.   I am aware that change can be unsettling, particularly
for the staff of the organisations involved. While
institutional structures have a very important role to play,
good supervision ultimately depends on the calibre and
dedication of the supervisors. The expertise and experience of
your staff, which you have built up in recent years will be
essential to the success of the new regulatory structure. I
trust that your Board and your staff will view these reforms
as an exciting challenge and opportunity to create a globally
effective financial regulator, with all the professional and
personal rewards which that will bring.

9.   As you will see from his letter to Sir Andrew Large, the
Chancellor has asked the SIB to work very closely with you to
plan both the transition to and the detailed structure of the
new organisation.  I has asked the SIB to lead this work,
which I know they see very much as a partnership in which the
SROs will play a full and active role.

10.  I am copying this letter to Sir Andrew Large. I am
writing in similar terms to the Chairmen of the other SROs.







                        ALISTAIR DARLING