City lawyers have criticised an apparent U-turn by the Conservatives over their plans to scrap the Financial Services Authority (pictured) and hand its fraud-busting powers to a new agency.

According to reports, the Conservative manifesto plan to scrap the FSA has been scuppered by the Liberal Democrats as part of the parties’ coalition deal.

Under the original plans, the FSA’s supervisory powers would have been handed to the Bank of England, and a new national fraud agency, incorporating the Serious Fraud Office and other law enforcement agencies, was expected to have been created.

Jeremy Summers, a partner in the business crime and regulation practice at national firm Russell Jones & Walker, said: ‘There seems to have been something of a media turf war between the SFO and FSA recently [with each] positioning to take the lead in any such agency, and a growing consensus that this agency is needed. If it is now to be shelved that might be a serious setback for the UK’s future anti-fraud capability.’

Jacqui Hatfield, regulatory partner at US firm Reed Smith, said that the coalition government was likely to move any breakup plans down the political agenda ‘to deal with more pressing economic concerns’.