FSA Integrated Prudential Regulation: Key Timetable Issues

Clive Briault, FSA Director of Prudential Standards, said:

When we published our Consultation Paper on the Integrated Prudential Sourcebook in June, our plan was to implement it at the start of 2004 to coincide with the new Basel Accord and related new European Union legislation. Now that these international initiatives have been delayed to at least the start of 2005, we need to decide how best to adapt our timetable while still gaining the benefits of integrated prudential regulation as early as possible. These benefits include more streamlined and transparent requirements for firms, which should promote competition and ease compliance costs.

We believe that we should not defer all the benefits of integrated regulation simply on account of the delays in the international discussions. Our preferred option is therefore to implement as much as possible of the Sourcebook early in 2004, while deferring those parts which will or may have to be changed significantly as a result of the international discussions.

The CP published today sets out a number of criteria for selecting which parts of the Sourcebook should be implemented ahead of the international agreements. These are designed to avoid the disruption for firms of significant two-stage changes to the Sourcebook and to implement in 2004 only material which will be substantially consistent with the eventual complete Sourcebook. Key candidates for implementation in 2004 are the Sourcebook provisions relating to insurance companies, Lloyds and friendly societies. These are particularly important in the context of the major changes in hand for insurance regulation.

Other areas suitable for early implementation are:

• systems and controls;
  
• investment firms not covered by the Investment Services Directive;
  
• operational risk; and
  
• market risk (in part).

The CP canvasses a number of other timing options, including implementing the Sourcebook in full at the start of 2004 with subsequent additions and changes made later to reflect the outcome of the Basel Accord and related EU legislation; and deferring the whole of the Sourcebook until after the new international standards are finalised.

Clive Briault said:

We look forward to hearing the views of the industry and others on our timetable proposals.

Notes for editors

1. CP 115 Integrated Prudential Sourcebook - timetable for implementation is available on the FSA's Website www.fsa.gov.uk. Consultation closes on 28 February 2002.

2. The FSA sets out its proposals for the Integrated Prudential Sourcebook in CP 97, which is also available on the website. Consultation on this closes on 31 December 2001.

3. The Integrated Prudential Sourcebook will form part of the FSAs Handbook of Rules and Guidance and will set out prudential requirements for all authorised firms. Prior to its coming into effect, the FSA's prudential standards are set out in five separate interim prudential sourcebooks covering banks, building societies, insurers, friendly societies and investment firms. These sourcebooks are available on the FSA's website. They will be replaced in due course by the Integrated Prudential Sourcebook.

4. Prudential regulation by the FSA aims to ensure that the firms it regulates are financially sound. This includes specifying standards covering risk mitigation and other related requirements.

5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

6. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.