On 9 February 2010, the Financial Services Authority (FSA) announced that Hector Sants, the FSA's CEO, will stand down in the summer. He will have held the role for three years in July, leading the FSA through a time of extraordinary challenges for financial institutions and their regulators alike. As yet, Sants' successor has not been selected, but financial institutions, their advisers and commentators are wondering what impact a change of leader might have on the FSA's policies and approach to regulation.

As a consequence of the financial crisis, the scope and nature of regulation in the financial sector will be deeply influenced by political issues at UK, European and international levels. The FSA will have to negotiate this over the next few years but its own approach to regulation and its relationship with regulated firms is likely to be influenced more by Sants' successor.

In the past, the approach to regulation and enforcement of the FSA has been contrasted with the aggressive enforcement-led approach taken by the US Securities and Exchange Commission. Sants has indicated that the FSA should not be viewed as having a soft touch and has pursued strategies designed to change the perception of the FSA, with the aim that it is viewed as a regulator to be feared by those who commit misconduct within the financial sector.

Under Sants' leadership the FSA has signalled a tougher approach to enforcement, through its ambitious agenda of creating a "credible deterrent" to misconduct. To this end it has been using a wider variety of its enforcement powers: successfully prosecuting insider dealing offences for the first time; commencing an increasing number of enforcement actions; imposing more numerous and higher-value financial penalties; prohibiting more individuals from working in the regulated sector; and imposing requirements directly on firms.

This new approach means the FSA will now be more prepared to question a business' judgements, rather than waiting to pick up the pieces if something goes wrong. Management capability is also key. Now, the FSA vets people taking up senior management positions at larger institutions and treats firms to more exacting Advanced Risk-Responsive Operating Framework (ARROW) supervisory visits.

The question is whether a new CEO will continue with these strategies. It is unlikely that the FSA will return to the old approach of a more consensual relationship with regulated firms, no matter who takes up the reins. The objective of changing the culture in the financial sector is likely to remain a priority.

The FSA's policy statement on financial penalties is scheduled to be published this month. The proposals link financial penalties with business income and will increase the level of penalties by multiples for the largest institutions. Whether this and other measures will at last create the desired credible deterrent and change business conduct will remain to be seen.

Criminal prosecutions have been stepped up but are still relatively rare. The changes planned for financial penalties may have a counterproductive effect if penalties become so large that more firms decide to defend rather than settle enforcement actions, inevitably creating more work for lawyers in the contentious regulatory field.

It is unclear whether institutions will be better regulated if management time is diverted away from running the business to fighting enforcement cases. At some point, the new CEO will need to assess the success of these strategies of intensive supervision and credible deterrence, and the political dynamic could also affect the nature of the task. But until then, the FSA will continue to pursue them.

Simon Orton is a partner in the financial institutions disputes group at Freshfields Bruckhaus Deringer.