End of FSA is an opportunity to influence global reform
After a period of 'will they, won't they?', the Chancellor finally ended the speculation over the Financial Services Authority's (FSA's) fate in his Mansion House speech. The announcement spelled the end of the tripartite regulation system as well as the FSA, whose responsibilities will be shared out among newly-created bodies after its planned demise in 2012. The new Government has opted for a 'twin peaks' model of regulation, whereby conduct of business and prudential regulation will be supervised by separate bodies.
July 21, 2010 at 07:20 AM
3 minute read
After a period of 'will they, won't they?', the Chancellor finally ended the speculation over the Financial Services Authority's (FSA's) fate in his Mansion House speech.
The announcement spelled the end of the tripartite regulation system as well as the FSA, whose responsibilities will be shared out among newly-created bodies after its planned demise in 2012. The new Government has opted for a 'twin peaks' model of regulation, whereby conduct of business and prudential regulation will be supervised by separate bodies.
Four weeks and many column inches later, there are still plenty of questions over how the UK regulatory landscape will look in 2012. HM Treasury is expected to publish its eagerly-awaited consultation paper before Parliament's summer recess on 29 July. This paper will hopefully add colour to the Chancellor's proposals.
The multi-trillion-dollar question is whether the changes will be enough to avert another major financial crisis. While only time will tell, what must surely be clear is that changing the regulatory architecture alone does not address the root cause of the crisis.
In the UK at least, measures to address the wider issues which are said to have contributed to the financial crisis are already well underway:
- Both Hector Sants and Adair Turner of the FSA have accepted that the regulator's previous 'light-touch' style did not work and the operating model has changed as a result. The FSA's outcomes-based approach to regulation, delivered through intensive and intrusive supervision and underpinned by its credible deterrence programme, is now well underway.
- Sweeping prudential reforms are also underway, both domestically and internationally, to address concerns around the funding of financial institutions. The FSA is ahead internationally on this, having implemented stringent liquidity rules at the end of last year.
- The FSA has put in place a remuneration structure for certain financial institutions intended to encourage proportionate risk-taking by individuals and is due to review this again in the latter part of 2010. European rules on remuneration have also been agreed by the European Parliament as part of the changes to the Capital Requirements Directive.
With these changes (and others) already in progress, some argue that changes to the regulatory structure are not necessary at all. However, whatever one may think of the timing or the merits of the proposed twin peaks approach to regulation or, more fundamentally, whether such radical structural reforms are needed at all, the time for shouting appears to be over.
The supervisory architecture proposed in the Mansion House speech seems here to stay and the forthcoming consultation is likely to deal with the detail rather than the fundamentals of the structural reforms. It is imperative, however, that a focus on form does not divert attention from the changes to substance that have been (and continue to be) developed and debated. And it is crucial that the UK does not devote so much time and energy to moving around its domestic furniture that it misses the chance to influence European as well as global reforms.
It will ultimately be likely that reforms at the European level will matter more than domestic changes, as those changes are moving us to a position whereby the new bodies within the reformed UK structure will effectively become an arm of European policy.
Jenny Stainsby is a partner and Pat Horton a professional support lawyer at Herbert Smith.
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