Financial Services Authority to be scrapped in major overhaul of UK financial regulation
By: Philip J. Morgan and Nicholas Brown
UK Chancellor of the Exchequer George Osborne yesterday announced the scrapping of the Financial Services Authority as part of a major shake-up of the regulation of financial services in the UK.
The FSA will be replaced by three new entities:
- a prudential regulator, which will be a subsidiary of the Bank of England, and will be responsible for oversight of UK-based retail lenders, investment banks, building societies and insurers, and regulation of capital requirements of financial institutions;
- a Consumer Protection and Markets Authority, responsible for the protection of consumers and day-to-day policing of financial firms; and
- a financial crime agency, incorporating the current financial crime powers of the FSA, the Serious Fraud Office and the Office of Fair Trading.
The FSA will be wound down over the next two years, with its full abolition set for some time in 2012.
The new prudential regulator will be focused on setting institution-specific capital requirements and will report to a new Financial Policy Committee of the Bank of England. This Committee will be chaired by Mervyn King, the Governor of the Bank of England, and together with the existing Monetary Policy Committee will provide a "big picture" assessment of the activities of the City. It will be given unspecified tools to stop the dangerous build-up of credit or asset bubbles. Mr King said its role would be to "turn down the music when the dancing gets a little too wild". The aim of putting the regulatory functions of the FSA under the control of the Bank of England, which is also in control of monetary policy, is to provide a unified approach to regulation of the financial sector.
The prudential regulator will be run on a day-to-day basis by the current FSA Chief Executive Hector Sants, who will continue to run the FSA until it is wound down, and will also sit on the Financial Policy Committee. It had been anticipated that Mr. Sants would stand down in July.
It is unclear at this stage what effect any of this will have on the regulations that are currently applied to banks and other financial services firms in the UK.
Mr Osborne also used his Mansion House speech to confirm that a bank levy will be introduced in the emergency budget on 22 June, and that an independent commission will be launched to review the future of banking with a view to reducing systemic risk. The Commission will consider measures to promote a more stable financial system, including the possible separation of retail and investment banking. It will be chaired by Sir John Vickers, former head of the Office of Fair Trading, and will consist of former gas regulator Claire Spottiswoode, former JP Morgan boss Bill Winters, ex-Barclays boss Martin Taylor and Martin Wolf, the chief economics writer at the Financial Times. The review is expected to take up to a year to complete.
