N2 the future
In less than two months time, the financial services industry is going to witness one of the biggest red letter days of all time.
On November 30, the FSA will finally become a reality. It is a day which sees a process, that the industry, the Government and the regulator itself has been working towards finally come to some kind of conclusion. Or, perhaps more accurately, a new age in the ongoing saga that is regulation will begin.
The birth of the single financial regulator is due to take place at midnight on that day but the FSA has been running in practice since the beginning of 1998 although it has done so without full statutory authority.
From N2, as it has become known, all this will change when the leviathan which spells out the FSA's mandate, the Financial Services and Markets Act will come into force.
This massive piece of legislation took more than two years to go through Parliament. Along the way, there was some fierce and well organised opposition to fundamental parts of the act from the Conservatives in both the Commons and Lords.
Conservative Shadow economic secretary Howard Flight, who led the debate for the Tories in the Commons says: "I think our main success was in getting an independent complaints investi- gator with the power to recommend compensation."
To demonstrate the wide scope of the Bill, the document itself had over 400 clauses running over 300 pages in length. There were thousands of amendments from the Government and Opposition. Some call it the biggest piece of legislation ever.
It is replacing the Financial Services Act of 1986, which is responsible for much of the regulatory environment the industry operates under currently.
The FSA will serve as a one-stop shop of regulation for the industry and consumer, replacing the mixed bag of regulatory bodies which have existed until now. There will be one point of contact for the 10,000 odd regulated firms, and all regulation will now emit from Canary Wharf, South-east London.
FSA managing director (regulatory processes and risk) Carol Sergeant says: "We have gone from one of the more complex regulatory structures in the world with our alphabet soup of regulators and statutes to one of unique simplicityone Act of Parliament, one regulator, one handbook of rules and guidance, one FSA point of contact for each firm."
It will replace 10 regulators, which, combined together, have been responsible for overseeing the industry to this point. The first to go was the Securities Investment Bureau - SIB - which officially changed its name to the FSA in October 1997.
The next step was when the Bank of England's supervision division was passed to Canary Wharf in June 1998, followed by the annexation of the Government's Insurance Directorate in January 1999.
The remaining seven, - the PIA, the Securities and Futures Association, Imro, the Building Societies Commission, the Friendly Societies Commission, the UK Listing Authority and the Register of Friendly Societies - still exist in name and will merge into the FSA at N2.
The FSA has four stated objectives in its broad mandate. It aims to maintain confidence in the UK financial system,to promote public understanding of the financial system, to secure the right degree of protection for consumers and to contribute to reducing financial crime.
It will have authority over all aspects of the industry, everything from new products to advice to the prudential supervision of companies. It has the power to force a firm to stop trading, to shut down banks and insurance companies and to investigate claims of insider share-dealing or money laundering.
And that's not all. One of the powers that the FSA has been granted is the ability to expand its own remit within legislative limits if and when it sees the need to do so.
There are checks and balances which are designed to make the FSA accountable. It was the accountability of the regime which was the cause of greatest concern by Opposition politicians, who made the point repeatedly while the Bill was being debated.
To Parliament, the FSA board, represented by chairman Howard Davies, is expected to appear before the Treasury select committee twice-yearly to answer to MPs. The committee can also invite Davies to attend on other occasions if they want to query the FSA about a specific issue, as they did in February about Equitable Life.
Part of the Act also created two separate bodies within the FSA - the consumer panel and the practitioner panel - which represent the public and industry respectively.
These have the power to make statements and recommendations. The FSA has to pay attention but it does not have to heed their advice, which limits the influence of these two bodies.
At the beginning of September, an Independent Complaints Commissioner was appointed, with former PricewaterhouseCoopers chief economist Rosemary Radcliffe becoming responsible for investigating any complaints made by regulated firms against the FSA.
Radcliffe says: "I see my role as crucial in underwriting the FSA's accountability, as regulator, to the financial services industry and to the wider public. It is vital for regulators to know that their actions may be exposed to independent scrutiny."
The FSA is also expected to issue a public annual report, which includes how it spends its budget, what action it has taken and what issues have been addressed throughout the course of the year.
Before any new rules or practices are implemented by the regulator, they are subject to competition vetting by the OFT, the Competition Commission and the Financial Service and Markets Tribunal, which is run by the Lord Chancellor's Department.
There are lots of measures designed to keep an eye on what the FSA does and how it does it but there is no denying this organisation is a very powerful one, with a wide remit over the industry at large which could become even greater.
It has yet to be determined if there will be a collective cheer or collective groan from the industry when the clock strikes midnight on November 30. Nor is it known what exac-tly will happen when offices open after the weekend on December 3.
If things go as they should, nothing untoward should happen. After all, the regulators have had more than three years to prepare themselves.
Next week: What has the FSA done so far?