FSA facing a difficult year ahead

This looks set to be a tough year ahead for the FSA as the government body’s approach to financial service regulation undergoes a major facelift.

The government is under the impression that the current system of financial regulation is no longer suitable, and needs to be replaced with a framework that promotes responsible and sustainable banking.

The release of the FSA’s new business plan outlines the details of the reform, and comes hot on the heels of Mervyn King’s damning indictment of the financial services industry on the whole, slamming the industry for irresponsible practice at the expense of the consumer.

The regulator is set to go under some major restructuring and the existing FSA will become the Financial Conduct Authority (FCA) at the end of 2012 or early 2013. In addition to this, the move will see the formation of the new Prudential Regulatory Authority (PRA).

The reshuffle has been announced as part of the FSA’s new business plan which was made public last month.

The reform is the major bombshell to come out of their latest report, but until the new regulators come in, the FSA will still focus maintaining ongoing supervision in a period of continued fragility in markets.

In his first Mansion House speech back in June last year, Chancellor of the Exchequer George Osborne, who revealed the 2011 Budget last week, set out the Coalition Government’s plans to reform financial services following the financial crisis.

The Mansion House speech is one of the set piece occasions in the chancellor's calendar, and was an opportunity for Mr Osborne to update the City on the state of the economy.

The old three-pronged regime will be abolished and the FSA will cease to exist in its current form. The Government will legislate to create a new Prudential Regulatory Authority (PRA), which will operate as a subsidiary of the Bank of England. The PRA will be solely responsible for the day-to-day prudential supervision of financial institutions.

“The one thing that’s important to consider is ‘is it really worth it’?” asks Ray Cohen, compliance expert and Managing Director of Jackson Cohen. “One of the pros is that the prudential side of things will be looked at separately.”

“But what justification have the FSA got to do that? It’s a bit of a Catch-22 situation.

“When things are tight with money, it’s difficult for the ordinary borrower. It’s harder for the first time buyer who won’t have large deposits and it’ll be harder to get on the property ladder so things will be much easier, in theory, for people with cash.

“You can never stop that, but it’s an eventuality that someone will always lose out. More often than not it it plays into the hands of the property people and not the man on the street.”

The changes will come into play at the end of 2012 or early 2013.

Hector Sants, chief executive at the FSA, said: “The 2011/12 business year for the FSA will be a difficult one. We have to ensure that we are operating effectively as a supervisor as well as taking forward the key policy initiatives.

“The principal ones are progressing the domestic consumer protection strategy, implementing a number of key EU directives and influencing the continuing international regulatory reform agenda.

“All this has to be done at the same time as taking forward the preparations for a new regulatory structure. The regulatory reform agenda remains on track to ensure the new structure will be ready."

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