The UK financial services regulatory structure is facing major reform under the Financial Services Bill (the Bill) which was published in draft form in June 2011.
As part of the overhaul, the UK Government has proposed the abolition of the current system including the Financial Services Authority (FSA) and the introduction of three new regulatory bodies, namely:
• the Financial Conduct Authority (FCA);
• the Prudential Regulation Authority (PRA); and
• the Financial Policy Committee (FPC).
Under the proposed new system the FCA and PRA will undertake dual regulatory roles in respect of all firms considered by the Government to manage significant risks on their balance sheets including banks, building societies, insurers, credit unions and Lloyds’s of London. The FPC will monitor the stability and resilience of the UK financial system and unlike the FCA and the PRA will not have direct regulatory responsibility for particular firms.
The current expectation for completion of the necessary primary legislation and the transfer of powers to the new regulatory bodies is March 2013.
The Prudential Regulation Authority
In its dual regulatory role the PRA will be responsible for the authorisation, prudential regulation and day to day supervision of applicable firms.
The PRA’s general objective will be to promote the safety and soundness of the firms it authorises with the main aim of ensuring that firms carry on their business in a way that avoids adverse effects on the UK financial system. In addition it is proposed that the PRA will adopt an insurance objective that will apply when the PRA discharges its general functions in relation to insurance and insurers, the aim of which will be securing an appropriate degree of protection for those who are or may become policy holders.
The Financial Conduct Authority
Together with the dual regulatory role the FCA will hold with the PRA, the FCA will inherit the majority of the FSA’s existing roles and will fulfil the role of the UK financial services regulator with the responsibility of all firms currently regulated by the FSA including personal investment firms, insurance and mortgage intermediaries, investment managers, custodians and corporate finance companies. The FCA will also act as the prudential regulatory for all firms that do not fall under the dual-regulation system.
It is intended that the FCA will have a more pro-active and interventionist approach to conduct regulation, aimed at addressing weaknesses in the current system and confronting actual and potential risks before they crystallise. The Bill outlines the strategic objective for the FCA as ensuring that the relevant markets function well. In addition the FCA will have three operational objectives:
1. the Consumer Protection Objective: to secure an appropriate degree of protection for customers;
2. the Integrity Objective: to protect and enhance the integrity of the UK financial system; and
3. the Competition Objective: to promote effective competition in the interests of consumers in the
markets for regulated financial services.
Charlotte Baker