Problems in FSA Linked to ‘Society’s Expectations’
The Financial Services Authority (FSA) has stirred arguments over the type of regulator needed to restore the trust of customers in the financial services industry.
FSA is set to be replaced by the Prudential Regulation Authority (PRA) whose approach to insurance regulation was previously discussed by the FSA and the Bank of England in a joint paper issued last month, which set out specific insurance objectives and a distinct approach to insurance regulation for PRA.
Similarly, the Financial Conduct Authority (FCA), which was formerly provisionally titled the consumer protection and markets authority, will work hand in hand with the PRA.
Hector Sants, FSA chief executive and PRA chief executive designate, said in a press statement: “It is not the regulator’s role to determine its own mandate. That is for society as a whole to agree. An independent regulator’s job is then to select the best tools to use.
“But unless the outcomes those tools are designed to achieve are aligned with society’s expectations, the regulator will not have the necessary mandate to operate, nor will it be a sustainable institution. As I have said before this was undoubtedly a problem for the FSA.”
Margaret Cole, interim managing director of the conduct business unit, added: “The failures of the past ten years mean that change is essential. We have a once in a generation opportunity to shape the new regulatory structure and challenge past orthodoxies. We must not waste it.
“We have time between now and the end of 2012 when the FCA is due to be established to consider what kind of regulator society wants the FCA to be and what this means for its operating model.
“It is critical that the issues are widely debated. For the FCA to be a credible and effective regulator it must have the support and backing of Parliament and the public from the outset.
“What it can be expected to do and achieve and what is outside its remit, undesirable or impossible to achieve should be clearly understood. Central to this is the recognition that the FCA will not be able to prevent all failures either of individual firms or in the way that firms treat their customers.”
PRA will be responsible for the prudential supervision of over 2,000 firms, of which around half will be deposit-takers while the others will be insurance companies, including 157 UK-incorporated banks (of which over 60% form part of overseas banking groups), 48 UK building societies, 652 UK credit unions and 162 branches of overseas banks, split roughly equally between the European Economic Area (EEA) and elsewhere.
On the other hand, the FCA will be responsible for regulating conduct in retail and wholesale markets, and will operate with the single strategic objective of protecting and enhancing confidence in the UK financial system.