Capco Blog

FSA Dissolution Made Simple

PRA to displace FSA, reporting to the FPC, while the CPMA oversees TCF, FSCS, and FOS. Clear?

Tangled in acronym spaghetti as they may appear, there are profound and important changes taking place in the already complex world of U.K. financial services oversight. It looks like “all change” for U.K. financial services regulation. In a climate still very much influenced by memories of the ‘Credit crunch,’ errant bankers and ‘mis-selling,’ the electorate expects the government to exercise ever-stronger control of the sector. What form will that control actually take? What will be the impact of the impending changes? We may not know all the answers already, but it will be vital to keep a watching brief on developments as they unfold, and then to relate them to likely organizational and operational impacts.

Au revoir FSA
The U.K.’s coalition government has begun to outline its plans for the future structure of financial services regulation. Although important details are still to be announced, the Chancellor has now identified the main features of the new regime, including the dissolution of the existing Financial Services Authority (FSA).

Current structure — a game of three halves
A key characteristic of the current structure is the tripartite arrangement whereby the Treasury, the Bank of England (operating independently of the government), and the FSA share regulatory responsibility.

Critics of the tripartite arrangement have pointed out that it is unclear where responsibility for macro–prudential monitoring or systemic risk management lies, and moreover, that macro–prudential monitoring and micro–prudential supervision are not properly coordinated.

Timing...counting down the months
The government aims to implement the new regulatory structure by 2012. Following a consultation process, it is anticipated that the FPC will be established by the end of this year, and the other new agencies shortly thereafter.

The grey areas are beginning to give way to black and white. Key details of the new U.K. regulatory framework in the financial services sector are beginning, as we have seen, to emerge. These include indications of how FSA responsibilities today are to be shared between new entities, and how macro and individual prudential monitoring are to be aligned. By its very nature, regulatory change on this scale will inevitably impact firms’ current operations and processes. There are still many outstanding questions; time alone will reveal the answers. Irrespective of the final details of the new regime it is clear that, in the immediate future, regulatory risk will be on the increase. Clear–sighted institutions will — must — continue to keep a close eye on developments.

We attempt to provide a clearer picture of what is actually taking place in our latest white paper.

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