Financial Regulatory Reform In 2011

Author:Mr Rupert Connell, James Cooper, Chris Brennan and Adam Blair
Profession:Barlow Lyde & Gilbert LLP
 
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The Government published last month its latest consultation paper on the proposed reforms to the UK's financial regulatory landscape, entitled "A new approach to financial regulation: building a stronger system" (the Paper). The Paper sets out the next stage of the Government's thinking based on the results of its July 2010 consultation and ongoing policy development being carried out by HM Treasury, working alongside the Bank of England (BoE) and the Financial Services Authority (FSA).

Consultation responses

To recap the basic agenda, the reforms focus on three key institutional changes. First, a new Financial Policy Committee (FPC) will be established within the BoE, with responsibility for macro-prudential regulation of the financial system as a whole. Second, a new subsidiary of the BoE will be the Prudential Regulation Authority (PRA), which will be responsible for microprudential regulation of certain financial institutions that deal with substantial risks on their balance sheets. Third, there will be a specialist body called the Financial Conduct Authority (FCA) (previously given the working title of the Consumer Markets and Protection Authority (CPMA)), which will have responsibility for conduct issues across the entire spectrum of financial services.

The Government summarised the responses to its July 2010 consultation as follows:

the need for the regulatory authorities' core statutory objectives to be balanced and supplemented with other factors; the importance of accountability and transparency for the PRA, FCA and FPC; the need for a strong, coherent markets regulation function within the FCA, including the functions of the UK Listing Authority (UKLA); the importance of the European and International agenda; and the importance of effective coordination between the new regulatory authorities. Key developments to the current proposals

Legislation

It has emerged that the reforms will be implemented through primary legislation amending the Financial Services and Markets Act 2000 (FSMA). The Government has justified its opposition to a wholesale repeal of FSMA on the basis of cost and disruption to firms. However, one has to wonder whether this would be more complex than an (arguably) more straightforward "repeal and replace" procedure. It is generally acknowledged that costs under the new regime are likely to be higher for some firms anyway in light of having two regulators as opposed to one.

The Financial Policy Committee

The FPC will sit within the BoE and its main function will be to...

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