In these pages we look at the major regulatory topics of the moment. You will find here briefing notes on recent developments and what the implications are for firms, events we are hosting and what action firms need to be taking, and how we can help.
On 16 June 2010, addressing the Bankers & Merchants of the City of London in his Mansion House speech, the Chancellor of the Exchequer, The Rt Hon George Osborne MP announced that the FSA will cease to exist in its current form. Instead:
- the Coalition Government will place the Bank of England in charge of macro-prudential regulation by establishing within it a Financial Policy Committee (FPC);
- a new prudential regulator, the PRA, responsible for macro economic regulation and oversight of micro economic regulation, will be created. This new prudential regulator will be a subsidiary of the Bank of England (BoE);
- a new powerful conduct of business regulator, the Consumer Protection and Markets Authority (CPMA), will be created responsible for regulating conduct of business for:
- firms providing services to consumers;
- retail financial services firms; and
- wholesale financial services firms.
- a single agency will be created to tackle serious economic crime, with improved detection and enforcement powers.
This process will be complete by 2012. Hector Sants is to stay at the FSA to oversee the transition, and from 2012 will become a Deputy Governor of the Bank and chief executive of the new prudential regulator. Andrew Bailey (currently BoE) will be his deputy.
We were promised more detail the day after the Mansion House speech, when the Financial Secretary, Mark Hoban MP, gave a statement to the House of Commons setting out the proposed framework. However, this did not add a great deal to what the Chancellor had said, and we will need to wait for the government's consultation paper – due to be published before the summer parliamentary recess – for more insight into what the changes may mean on a day-to-day basis for firms. The recent strong focus on prudential regulation will evidently continue.
In the meantime it is very much "business as usual" for the FSA and they have indicated that the reforms to the structure of regulation will not divert them from key regulatory initiatives such as the Retail Distribution Review the Mortgage Market Review or Solvency II.
The many unanswered questions about the future regulatory framework include the detailed arrangements for the FSA's enforcement activities and for those markets activities that relate to exchanges, clearing infrastructure and prudential issues. The boundaries between the CPMA and the Economic Crime Agency also remain unclear and a turf war has already erupted in relation to whether criminal market abuse prosecutions will be the responsibility of the CPMA or the new Economic Crime Agency. But that does not alter what firms must be doing right here and now. Prior to the launch of the new serious economic crime agency, the recent focus on financial crime will continue and for now will be overseen by the FSA.
The system of regulation prior to the FSA consisted of a number of different regulators, however the split then was principally between financial services sectors, as opposed to between prudential and conduct of business. There are examples in other European countries however (for example firms have dual reporting responsibilities to the BAFIN and the German central bank in Germany). Indeed, the splitting of prudential and conduct of business regulation is not a new concept in Europe and it is, of course, at European level that the basis of most of our domestic financial services policy and rules is now created. Firms currently carrying out regulated activities on a European cross border basis via a branch already have to think about the split of prudential and conduct of business regulation between their host and home state regulator.
The current tripartite system was attacked in the Mansion House speech, but the FSA itself came under fire when Mark Hoban MP accused the FSA of becoming "a narrow regulator, almost entirely focused on rules based regulation." But we have seen in the FSA's lifetime a move from rules-based regulation, to principles-based regulation, and more recently a greater emphasis on rules again under the banner of "outcomes-focused" regulation and a current display of intrusiveness and 'credible deterrence'. Change often means cost, and one hopes that any temptation to tinker with those parts of the current FSA handbook which are fit for purpose is firmly resisted.
Briefing Notes
We produce a range of briefing notes on topical issues. There are links to these from the relevant topics pages, and you can find a complete list of current notes here.