Sants and King get the power
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Sweeping reforms to the regulatory system will see the FSA abolished and the creation of a Consumer Protection and Markets Authority to regulate all authorised firms.
FSA chief executive Hector Sants, who was expected to leave the regulator this summer, will oversee the restructure and become the first chief executive of a new prudential regulator, a subsidiary of the Bank of England, as well as becoming a deputy Bank of England governor.
The prudential authority will take on the FSA’s role as a prudential regulator of banks and insurers, with the FSA ceasing to exist from 2012.
Bank of England governor Mervyn King will chair a new financial policy committee overseeing and anticipating macroprudential issues that may threaten financial stability.
It will have the power to require the prudential authority to implement its decisions and will be directly accountable to Parliament. An interim FPC will be set up in the autumn, ahead of legislation.
Other FPC members will include the deputy governors for monetary policy and financial stability, the new deputy governor for prudential regulationand the chair of the CPMA.
The reforms give huge new powers to King but Chancellor George Osborne will have the power to overrule the governor in a crisis.
In Parliament last week, Treasury Financial Secretary Mark Hoban pledged to publish a detailed policy document before the summer recess before a full consultation process with primary legislation passed within two years. He said the Government was committed to minimising uncertainty and transitional costs for firms and maintaining a strong regulatory focus during transition.
The reforms will also see the creation of a single agency to tackle economic crime.
Announcing the reforms in his first Mansion House speech as Chancellor last week, George Osborne said: “We do not undertake these reforms lightly and we do so only because we believe they are absolutely necessary. We will handle the transition carefully, consult widely and get this right.”
FSA chairman Lord Turner says the FSA now has clarity on its direction and the timescale to ensure a smooth transition.
He says: “The overall future shape of financial regulation is now much clearer and we are in a strong position to create a future regulatory system that builds on the FSA’s achievements over the last few years of major change.”
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