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Will the regulatory landscape change for the better?

Last month, the Chancellor announced the new financial regulatory structure which will replace the FSA and now the Treasury has published its consultation paper on the proposals for reform.

The new structure comprises four new bodies: the Financial Policy Committee and Prudential Regulation Authority will be accountable to the Bank of England and the Consumer Protection and Markets Authority and the Serious Economic Crime Agency will report directly to Parlia-ment. In its consultation paper, the Government claimed that this reshuffle will create a more powerful regulator with “significantly increased influence over the UK’s financial systems and economy”.

The FPC will assume responsibility for macro-prudential regulation and will make recommendations to the PRA for it to implement and the PRA will be respon-sible for micro-prudential regulation and will be a subsidiary of the BoE. So, will this mean another layer of bureaucracy?

On the one hand, to sit macro and micro prudential regulation within the BoE makes sense, as the BoE already has the responsibility of setting monetary policy and therefore has a strong grip on how the economy operates.

However, there is a danger in creating separate bodies. Macro and micro economics are closely intertwined in terms of assessing market stability and institutional risk and therefore care will be required to ensure appropriate engagement between the FPC and the PRA at all levels.

Fundamentally, the FPC needs to funnel its knowledge and set clear guidance to the PRA’s supervisors to ensure effective supervision of firms’ risk management and corporate governance. We expect that splitting the functions will place more emphasis on each body’s responsibility and accountability and provided that they are operating as one overarching unit, this may be an improvement.

Since the BoE does not have experience in being a consumer champion, it makes sense that the CPMA will be responsible for consumer protection and business conduct regulation.

The SECA will take over the work currently undertaken in the areas of the Serious Fraud Office, the FSA and the Office of Fair Trading. We expect more enforcement actions as the FSA enhances public perception of it being the body to take charge/lead the SECA.
During the transitional period, firms are advised to review their budget contin-gency as there is no doubt there will be extra cost involved with rebranding.

It is too early to say whether the new structure will mean the UK regulatory landscape has changed for the better. Provided that the Government has clear direction and understanding of each body’s role and responsibility, the new structure could provide improvement but will involve expense.

Suzanne MacDonald is a partner and head of financial services regulation at TLT

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Heather Allison 9th August 2010 at 2:22 pm

    Sorry I forgot my comment whilst trying to remember what the FPC, PRA, CPMA and SECA all stand for!

  2. paolo standerwick 9th August 2010 at 2:23 pm

    The regulatory landscape will change, BUT FOR THE WORSE. When one has a dodgy foundation as we currently do, rebuilding on top will make it worse. More mistakes, more unqualfied staff making big decisions, more of everything we have will just be more cr*p and more costs. You wait and see.

    The only answer is to get rid of all the the people who helped run the current system which is broken. Then start with fresh, new and experienced industry blood.

  3. Jennifer Nicholls 9th August 2010 at 2:36 pm

    Indeed we must remember what all these bodies stand for because you can be sure there will be questions in the exams about these. Perhaps there will be a seperate exam just to test us on all the abrieveations.

  4. Just about anything should be an improvement on what we have currently. I don’t share the view that everything will now go to hell in a handcart.
    As far as I can make out the main input of ex FSA staff will be in the Serious Economic Crime Agency-which by definition (it is to be hoped) will not be involving IFAs but, one assumes, shady and rather larger organisations (any further speculation would be libellous).
    We the IFAs should be welcoming the CPMA and waving a fond farewell to Hector and co, and thanks for all the fish (as the expression goes).

  5. Regulatory landscape change for the better?.You only have to evidence the dog’s breakfast/pig’s ear (not to mention the scandalous cost) over the last twenty two years for the answer. I am afraid The Muppet Show will continue, plus the fats cats running it will become even fatter.

  6. All this hinges on ALL regulatory bodies being obliged ~ under pain of disciplinary and financial sanctions ~ to adhere to the STATUTORY Code of Practice For Regulators, drawn up in 2007 and to date resolutely ignored by the FSA, FoS, FSCS and all the rest of them who think they can do whatever they like without recourse to anyone.

    Why is no mention of that made in this article? Are you even aware of the Code, Ms. MacDonald?

  7. Change for the better ?

    Whilst past performance is guarantee ….

  8. I just had a look at the statutory Code of Practice For Regulators, as I’d never heard of it before. As far as I’m concerned, it was designed in a time when the government (and maybe even the public) believed regulated businesses could be trusted to be innovative, financially stable & successful, and not rip customers off. Times change and we must change with them.

  9. Julian Steve4ns 10th August 2010 at 4:53 pm

    Alex

    Since when were the banks financially stable and could be trusted not to rip customers off?

    No one’s saying we should abandon effective regulation to root out cowboys and bad practices.

    The issue here is the quite unreasonable burdens placed on good businesses, especially small ones, which endeavour genuinely to abide by both the spirit and the letter of the regulatory framework, year in, year out, whilst many much larger institutions are all but afforded carte blanche effectively to ride a coach and horses through it.

    A word that appears frequently throughout the Code is proportion and of that the FSA appears to have no concept or regard. Why, for example, are firms required to pay a flat regulatory levy per RI rather than a percentage levy on their turnover? Surely, a firm with 3 RI’s turning over £600K p.a. represents broadly a regulatory risk twice as great as that of another 3 RI firm turning over only £300K p.a?

    Times may be changing constantly, but that is no justification for abandoning (or, as far as the FSA is concerned, completely ignoring) just, proportionate and above all else accountable regulatory governance.

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