Peter Mandelson, the UK Business Secretary, criticised America’s unilateral financial reforms as misguided and insisted that Britain would be the key driver of the global regulatory overhaul.

Mandelson in a speech he said Barack Obama’s proposals to ban proprietary trading and limit banks’ liabilities “came as a bit of a surprise” to those working on the G20’s financial reform agenda.

“It’s important that we keep the multilateral process firmly on track,” Mandelson said. “However, I think President Obama’s proposals can actually give that process an even greater legitimacy and urgency.”

Unilateral action on financial regulation risked creating an uneven playing field, Mandelson said.

“Part of the dangerous dynamic of the last three decades has been a tendency of financial jurisdictions to underbid each other in market regulation,” he said.

Speaking to reporters after the event, however, he was sceptical about the President’s attempt to limit banks’ size and trading activities.

“Trying to apply sweeping rules about the range, content and structure of banking entities’ activities is too difficult to do,” he said. “It’s the principle and practice of regulation that you need to focus on, not the size and range of banks.”

The Senate Banking Committee is in the final stages of drafting a US Financial Reform Bill.

The White House has struggled to convince the committee to include Obama’s proprietary trading ban and it was unclear how the proposal would appear in the draft legislation.

Last September the G20 countries committed to reform financial supervision, including tackling excessive risk-taking and updating solvency rules for banks.

The G20 is due to meet in Toronto in June to discuss progress on these reforms, which Mandelson said had slowed down in some countries since last summer.

He said that Britain would “push strongly for a positive outcome” from the meeting. “A G20 success needs working at,” he said. “It needs someone to keep a grip of the agenda.”

Charles Dallara, managing director of the Institute of International Finance, said that America’s decision to go it alone with some financial reforms had worried the bank executives and ex-central bankers that were members of the IIF.

“It’s difficult enough for the market to see its way through this period of uncertainty and continue to generate credit flow without the framework of the G20 being fractured by proposals which are rather clearly outside that framework,” he said.

Source: Times Online