Tuesday, 1 March 2011

Re-Arranging The Deck Chairs?

This makes for interesting reading. It outlines how the new regulatory structure for the UK Financial Services Industry will quite literally "stack up". The information is drawn from the Financial Times and a "Dear CEO Letter" from Hector Sants (currently Chief Executive of the UK FSA).

At the top, we have the "Financial Policy Committee" consisting of regulators, central bankers and "external experts" (my quotation marks) which takes responsibility for:

●Systemic risk (macroprudential regulation)
●Watching for and deflating credit bubbles
●Monitoring shadow banking

Who appoints the FPC's "external experts" is not clear.

Next will come the Prudential Regulatory Authority (PRA) - a subsidiary of the Bank of England - which will oversee safety and soundness of banks and insurers. This is one of the areas in which the FSA was heavily criticised for failure. Here's hoping...

We also have the Financial Conduct Authority (FCA). This was previously to be known as the Consumer Protection and Markets Authority (CPMA) mentioned in the "Dear CEO" letter above. The FCA takes on:

●Consumer protection
●Market supervision and regulation
●Business conduct of banks and financial services
●Civil and criminal enforcement of market abuse rules
●Responsibility as UK listings authority
●Prudential regulation of firms that don't fall under the PRA!

Costs over the next two years for setting this up are estimated at £12.3million to be paid for by the institutions that are regulated, and we know who that will be passed on to...

What are missing so far are the Bank of England and the Treasury who will needs be involved (I assume on the FPC?) as part of the overall macro-prudential and financial system. From a triumvirate, we're moving to a regulatory oligarchy, with attendant confusion and therefore systemic risk. As an exampe, what is the difference between monitoring "safety and soundness of banks" (PRA) and "market supervision and regulation" (FCA)?

A case of "too many cooks"?

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