Chancellor George Osborne delivered his first Mansion House speech last week and confirmed what many of us expected as he outlined plans to abolish the FSA by 2012 and the removal of the tripartite system of regulation introduced under Gordon Brown in 1997.
Instead, we will be regulated by a twin peaks’ approach, as seen in other parts of the world – a form of regulation by objective where there is a separation of functions between two regulators, one that performs safety and soundness supervision while the other oversees conduct of business.
Supervision of banks will be carried out by the prudential regulatory authority, which will replace the FSA and be chaired by Mervyn King as governor of the Bank of England. King has been given sweeping powers to curb City excesses and prevent another financial crash. But is this too much power, considering he took a major part in one of the worst banking crises in history? FSA chief executive Hector Sants is to remain at the regulator to supervise its transition into a new prudential authority that will be a subsidiary of the Bank of England.
The BoE will take over regulation of systemically important firms, particularly big deposit-taking instit-utions. I believe this is the right place for macro-prudential regulation of the economy, regulation of banking institutions and oversight of balancesheet organisations.
The bank will also take over the FSA’s macro-economic responsibilities thr-ough an independent finan-cial policy committee, while other financial services companies and intermediaries will be regulated by the Consumer Protection and Markets Authority.
The Conservatives want their proposals for regulation to start a debate and to enable them to enact rapid change with what they believe will be the least amount of disruption. Are they thinking this change will pass unnoticed?
Every piece of financial services marketing collateral will need to be thrown away or amended and new rulebooks will need to be written to split the regulatory responsibilities between the BoE and the CPMA. Many businesses will need to be overseen by both regulators and the risk of differences in conduct of businesses rules is high.
In these difficult times many high quality RDRready IFA firms are paying substantially more in FSA fees even though they have never been on the regulator’s radar as high risk. Meanwhile, the FSA has paid itself £22m in bonuses. Who can justify this as being fair?
The twin-peak changes will cost millions of pounds that will ultimately be paid by the consumer. The sooner the new regulators move to light-touch regulation the better or they may end up with few firms to regulate – not due to economic reasons but due to increasingly difficult regulatory pressure.
Kim North is director of Technology and Technical