Britain’s top financial regulator has announced he plans to step down, surprising the markets and casting doubt over the future of the Financial Services Authority and broader banking reform.

Britain’s opposition Conservative Party, tipped in the polls to win the next election expected in May, has said it wants to abolish the FSA and hand its banking supervisory powers to the Bank of England, saying it failed to spot problems ahead of the financial crisis.

The regulator said Hector Sants, who will leave in July, had always planned to hold the chief executive post for only three years, but did not outline a succession plan. It said Sants’ successor would be announced in due course.

Sants, a highly regarded former investment banker, took over the top job in July 2007, rising from head of the regulator’s wholesale and institutional markets division to take the helm.

Sants, who has steered the regulator through the financial crisis and the painful fallout that followed, joined the FSA from Credit Suisse First Boston in 2004.