Political and regulatory news
Issue 3 - 22 July 2010
Coalition to overhaul UK financial regulation
The new Coalition Government is to abolish the tripartite system of financial regulation.
In his first Mansion House speech, George Osborne set out the new Coalition Government’s plans to reform the UK’s framework for financial regulation. The new Chancellor will abolish the tripartite regime introduced by Gordon Brown in 1997, blaming insufficient oversight and communication breakdowns between the Financial Services Authority, the Treasury and the Bank of England for preventing the failure of the UK banking system. Under his new approach the Bank of England will be given overall responsibility for prudential regulation.
Under the current framework, the Bank of England’s remit is limited to maintaining financial stability. The FSA acts as supervisor of the banking sector. The Treasury is responsible for financial services legislation. The new system will see the abolition of the FSA and its replacement by a new prudential regulator which will operate as a subsidiary of the Bank of England. This new unit, known as the Prudential Regulation Authority (PRA), will be responsible for prudential regulation of financial institutions and will be chaired by the Governor of the Bank of England. Hector Sants, the chief executive of the FSA, will act as the first Deputy Governor and chief executive of the PRA. The Bank of England will also establish a new Financial Policy Committee (FPC) with responsibility for overseeing and addressing any macro-economic issues which threaten economic and financial stability.
A new Consumer Protection and Markets Authority will be set up to assume the FSA’s responsibilities for consumer protection and the conduct of regulated firms. This new agency will absorb the Financial Ombudsman Service, the Financial Services Compensation Scheme and the Consumer Financial Education Body. George Osborne has also committed to establishing a single agency responsible for dealing with economic crime.
Mervyn King, the Governor of the Bank of England, has welcomed the new responsibilities, saying “Over the next few years we will put in place a framework for financial stability to parallel that for monetary stability. We need both. As we have seen, one without the other is not enough”.
It is yet uncertain exactly how the regulation governing investment companies will fit into the new regime and who would be responsible for the FSA’s Handbook, incorporating the Listing Rules, Disclosure and Transparency Rules, and Prospectus Rules. It is expected that more details will emerge as the reforms start to take shape and the AIC will engage closely with the new structures and ensure that the current strong relationships with key regulatory parties are maintained.
To view George Osborne’s speech at Mansion House on 16 June 2010, click here.
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