It suggests that prudential supervision should sit with one regulator, and the retail market with another. This is what Australia does.
Tory Shadow Chancellor George Osborne has welcomed the report without committing to specifics.
With the Conservatives now a Government in waiting, everything is in play and the end of the FSA is no longer unthinkable.
This is not to fault the organisation in recent months. The regime of Hector Sants and Adair Turner has apologised where needed, adopted a robust approach where necessary and done its best to bring back confidence.
But it is a thankless task. Until we can be sure the last bank has been taken into public ownership, and the last ponzi scheme has collapsed, then confidence will remain a frail and fragile thing.
The FSA is merely a junior partner to the big beasts, the Treasury, Downing Street, the Bank of England and even the European Commission.
One can sense power leaking away. Both the EU and the BoE think they could do better at many aspects of the FSA’s work. Indeed, it is clear that Turner’s reform agenda outlined to MPs a couple of weeks ago was also a case for its continued existence.
The changes to banking regulation made sense, his embrace of product regulation should set alarm bells ringing.
Now the industry has to consider not just what the FSA is saying but whether the FSA will continue.
Alongside grappling with the RDR and petitioning to see costs reduced, the industry should inform the debate about future regulation.
IFAs may now be tempted to discount the RDR. That would be unwise, it will survive in some form, but perhaps a bit of compartmentalisation is required. Deal with the FSA as if it will last forever certainly when talking to the FSA. Deal with politicians, particularly the opposition, as if it may not.
I can see arguments for and against a split. One might argue that one organisation should deal with systematic risks from banking, from heavily leveraged hedge funds, from international fraudsters and errant London offices of huge global players such as AIG.
Another should deal with the retail market. To try to do both may be too much work. Could we see PIA version two, this time made effective?
For the counter-argument, consider Northern Rock. A better informed, joined-up FSA might have realised the Together mortgage was risky in terms of lending but that it also required a risky funding model. Similarly with HBOS, a smarter FSA might have realised that its corporate lending strategy was doubling or tripling its housing and property market risk.
I always remember lunches with the LIA’s veteran public affairs director John Ellis, who would muse that as all things go in cycles, this big bold super-regulator would probably be broken up into its constituent parts one day. He may be proved correct, although financial services without the FSA will seem a very strange place.
John Lappin is a former editor of Money Marketing