Sir James Sassoon’s review of the tripartite regime, commissioned by the Tory Shadow Chancellor George Osborne, proposes separating prudential and conduct of business oversight between two independent regulators.
FSA chief executive Hector Sants told the audience at the Reuters Newsmakers event last week that the understanding of institutional risk requires both prudential and conduct oversight responsibilities.
He said: “The idea that twin peaks regulation would have helped mitigate the current crisis is, in my view, not supported by events at all.
“The twin peaks approach creates structural barriers to a full risk assessment of an institution and would sow the seeds of the next crisis.”
Sants also said that Sassoon’s suggestion that enforcement powers should be separated from supervision would make both tasks “immeasurably more difficult”.
Sants reaffirmed the regulator’s view that non-executive directors will need to raise their technical skills to oversee internal risk within firms and must show greater willingness to challenge executives.
But Beachcroft Regulatory Consulting managing director Richard Hobbs says the regulator’s warning that the industry should be “frightened” of its powers will not help non-executive directors raise their standards.
He says: “If the regulator wants to give them tools to help them do their job properly, then they will be very grateful, but barking at them is not going to change the way they do their job.”