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MM Leader: Regulation rethink needs to be carefully considered

The creation of the Consumer Protection and Markets Authority and Prudential Regulation Authority involves a radical regulatory overhaul.

As legislation is prepared, Parliament and regulators have a rare chance to reshape regulation for the better.

The Treasury select committee is right to urge restraint from a Government that appears impatient in its desire to introduce its reforms.

The Government intends to introduce legislation by the middle of this year to ensure the passage of primary legislation by July 2012.

It needs to look no further than the introduction of the Financial Services and Markets Act, which created the current regulatory structures under the previous Labour administration, for an example of the complexities and headaches involved.

As the bill journeyed through Parliament, many MPs in the process, particularly on the Conservative benches, complained at the short amount of time allocated to scrutinising such a technical piece of legislation in committee stages.
The bill ended up bring heavily amended and turned into one of the most complex and longest pieces of legislation on the statute books.

The TSC warns the Government must take into account the Independent Commission on Banking, which does not report until the autumn, casting doubt on the aim of introducing legislation by the middle of 2011.

The Government’s top priority should be to make sure the legislation is as good as possible rather than wanting to ensure it is introduced as quickly as possible.

However, one area where regulatory authorities should be pursuing urgent reform is to address the unfairness in the way the Financial Services Compensation Scheme is structured.

Advisers have again been hit with a huge FSCS interim levy, mainly due to the failings at Keydata, and who knows if another one of the 6,500 firms classed as intermediaries will fail in the future and create another costly mess.

An FSA review of FSCS funding has been kicked into the long grass but regulators are underestimating the anger felt by IFAs fed up with picking up the bill for the failings of others.

The regulator’s hands may already be full but calls for a product levy to replace the current polluters’ competitors pay model should be given serious and urgent consideration along with a reassessment of the FSCS sub-class definitions.

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  1. “The creation of the Consumer Protection and Markets Authority and Prudential Regulation Authority involves a radical regulatory overhaul.”

    Does it? So far, all it looks like is a partitioning of the FSA into two separate entities which Hector Sants has announced is going to cost (us, as usual) £50m. That’s the cost, but what are the anticipated benefits?

    Will the CPMA be subject to regular oversight by the NAO? This was talked of years ago with regard to how the FSA manages its affairs, but then quietly swept under the carpet, never to be heard of since.

    Will the CPMA be required to abide by the Statutory Code of Practice For Regulators? Why is the FSA allowed completely to ignore it?

    Will new regulatory initiatives from the CPMA be subject to scrutiny and approval by an independent third party regulatory body? Or will the CPMA be allowed merely to brush aside any challenges from outside parties in the same way as the FSA is presently able to? Will the CPMA be held accountable to this body for failures and oversights?

    Will there be an independent Regulatory Ombudsman Service to whom regulated entities will be able to present grievances against the CPMA?

    Will the CPMA be required to accord those it regulates to the protection of English Law on issues such as the 15 year longstop?

    It’s all very well bandying about terms such as “radical” and “overhaul”, but we need to know just what these things are actually likely to mean in practice and whether or not anything is likely to change for the better.

    The present system, under which the FSA is free to set its own agenda without reference to anyone else and then act as judge, jury and executioner, is at least as much in need of reform as the way in which the FSCS is funded.

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