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The head of the Prudential Regulation Authority (PRA), Andrew Bailey, has been named the new head of City regulator, the Financial Conduct Authority (FCA).

Mr Bailey has been handed the role on a five-year contract and will start as soon as a successor for the PRA is found.

He replaces Tracey McDermott, who filled the seat on an interim basis after Martin Wheatley was forced out in September. Ms McDermott announced earlier this month that she would not seek to job on a permanent basis.

Reacting to his appointment, Mr Bailey said: “The new system of financial regulation in the UK depends for its success on both conduct (FCA) and prudential (PRA) regulators achieving their objectives given by Parliament.

"Recent developments have shown that the most pressing issue in the system right now is the need for stable leadership at the FCA. Although it had not been my intention to leave the PRA during my term as CEO, a job that I enjoy enormously, it is a great honour to have been asked by the Chancellor to take on the job of FCA CEO."

Chancellor George Osborne said: "We have cast the net far and wide for this crucial appointment and, having led the Bank of England's response to the financial crisis, Andrew is simply the most respected, most experienced and most qualified person in the world to do the job.

"The government is determined that the financial sector operates to the highest standards. Anyone who has dealt with Andrew knows he will be tough but fair, and understands the flaws and merits of the sector better than anyone."

The Chancellor ousted Martin Wheatley in the summer after his approach came across as 'banker bashing' by the City. He was appointed because of his reputation as a tough regulator.

Since he left the FCA, a major inquiry into banking culture and practices has been dropped.