Balls sees gaping hole in City revamp The bill to revamp City regulation includes a "gaping hole" that could prevent important warnings from reaching the chancellor of the exchequer , Ed Balls, Labour's shadow chancellor, has warned. In an interview with the Financial Times, Mr Balls criticised the extensive powers the bill would grant to the governor of the Bank of England, Sir Mervyn King, saying the new structure could stifle dissenting voices in the run-up to another crisis. Mr Balls - an architect of the current regulatory system which dispersed power between the Treasury, the Bank and Financial Services Authority - is concerned about the new powers the Bank governor will enjoy. The legislation would break up the FSA, transferring bank supervision powers to a new arm of the Bank of England and creating an independent Financial Conduct Authority to police markets and protect consumers. "I don't think [the current system] can be said to have caused the global crisis," he said. Countries with very different structures got this wrong. We are at best very unconvinced that this [bill] is a comprehensive solution. Mr Balls cited a memorandum of understanding under which the chancellor has agreed to consult with the Bank governor, rather than communicate directly with the two deputy governors in charge of financial stability and bank supervision."It's a gaping hole in accountability and good decision making," he said. I don't think this legislation is fit for purpose. While Labour will support the bill at its second reading next Monday, Mr Balls warned that the opposition would seek to amend it later. The Treasury insisted the bill made clear, for the first time, that the chancellor would be in charge in a crisis. According to a department spokesman, the Bank governor would have to inform the chancellor immediately if there was any prospect of "public money being at risk." Mr Balls" critique of the Bank governor's role echoes criticism voiced by members of the Treasury Select Committee, who want the coalition government to impose a stronger supervisory board on the Bank. Mr Balls did, however, praise the draft legislation for giving the chancellor power to direct the Bank in a crisis and creating a new arm of the Bank, the Financial Policy Committee, to identify and defuse systemic risks. Labour is still digging into the details of the plan, including what powers might be given to the FPC to curb credit bubbles and exactly how the FCA will protect consumers. Mr Balls expressed support for last week's announcement by Martin Wheatley, the FCA's chief executive designate, that the consumer regulator would act aggressively to insure that retail customers are only sold appropriate products. "There is no doubt in my mind that the FSA became too focused on process ... ignoring perverse outcomes because the processes were okay in 1970s regulation," Mr Balls said.