The Bank of England today becomes one of the most powerful central banks in the world, when the biggest overhaul of financial regulation since 1997 takes place.

As part of sweeping changes that will undo the system set up by former Chancellor Gordon Brown, the Financial Services Authority (FSA) will be replaced with three new bodies - the Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

Slammed for being "asleep at the wheel" during the financial crisis, the so-called Tripartite structure - comprising the FSA, the Treasury and the Bank of England - will make way for a new system to regulate the financial sector and ward off future crises.

With both the FPC and the PRA sitting within the Bank, it will take on vast new powers and responsibility not just for regulating lenders, but also spotting and preventing possible financial shocks.

It marks a return of regulatory powers to the Bank, which were taken away from it on gaining independence in 1997.

Chancellor George Osborne is hoping the shake-up will plug the gap that previously existed in the Tripartite system, with no one taking responsibility to monitor risks to the financial system as a whole, such as the lending boom.

He has previously criticised the structure for being "incoherent" and "without clear lines of accountability".

This lack of oversight led to excessive lending that sparked a sub-prime mortgage crisis and in turn the credit crunch and banking meltdown.

Regulators worldwide have now accepted they need to have macro-prudential responsibilities to avoid a repeat of the financial crisis.

There are also specific faults within Britain's financial watchdog that the new system aims to iron out.

With its self-proclaimed "light tough" regulation, the FSA failed to rein in banks.

It has since admitted mistakes were made in the run up to the collapse of Northern Rock, while it appeared woefully inept in preventing the banking scandals that have emerged in recent years - such as the Libor interbank rate-rigging affair and mis-selling of payment protection insurance (PPI) and interest rate swaps to small businesses.

There are hopes the new system will have more teeth.

With the FPC acting as the pillar of the incoming regime, it will take the broadest overview of financial regulation.

The PRA will ensure banks and insurers have enough capital and liquidity, while the FCA will protect consumers by promoting effective competition and regulating all financial services firms.

PRA chief Andrew Bailey has already promised a more intrusive approach to regulation of the 1,700 financial institutions under his remit.

His counterpart at the FCA, Martin Wheatley, has also pledged to clean up the sector with new powers to suspend or ban products.

The FCA, which will sit outside the Bank, will also be able to fine firms.

But there are concerns the Bank will become too powerful, given that it also has responsibility for monetary policy in the UK.

In a stark warning, the former head of Germany's central bank said recently it risked impacting its independence.

Ex-Bundesbank boss Axel Weber, who currently chairs Swiss group UBS, said he "flatly refused" taking on a regulatory remit when he was head of the bank due to concerns over independence.

However, the incoming structure heralds a new era for UK financial regulation after the banking crisis.

There will also be a change at the top for the Bank, with Canada's top central banker Mark Carney taking over from governor Sir Mervyn King in July.

Having impressed with his record of steering Canada through the global financial crash largely unscathed, Mr Carney is seen as a solid choice to oversee Britain's financial regulation and will pave the way for a much-needed fresh start.