In June 2010 the Chancellor announced changes to the way that financial services will be regulated. These changes include separating the regulation of prudential and conduct operations – both currently regulated out by the FSA – to be carried out by two new organisations: the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
When do the changes come into effect?
From 2 April this year the FSA will move to a ‘twin peaks’ operating model. This model will largely reflect the way the two new organisations will operate in the future.
It will mean changes to the way we work with firms in preparation for the ‘legal cutover’ to the PRA and FCA.
‘Legal cutover’ is when the PRA and FCA will officially come into existence, and is expected to happen in early 2013. This is dependent on the Financial Services Bill being approved by Parliament.
Find out more about the Financial Services Bill
How will your business be affected?
The main change will be in the way that firms are supervised and in the risk mitigation process. The key changes are listed here, but more detail can be found in the briefing speech given by Hector Sants to the British Bankers’ Association (BBA).
Speech by Hector Sants to the BBA
Changes to supervision
Firms that are ‘dual regulated’, such as banks, insurers and major investment firms, will be supervised by two independent groups for prudential and conduct. These groups will work to different objectives and act separately with firms, but will coordinate internally to share information and data.
All other firms will be supervised by one supervision area for both conduct and prudential issues.
The supervision models will be different for the PRA and FCA:
- prudential supervision will continue to have dedicated resources supervising firms; and
- conduct supervision will focus more on thematic work, and less on firm-specific work.
Changes to risk mitigation
The ARROW risk mitigation programme will be replaced by two separate risk mitigations programmes, one for prudential and one for conduct. Firms will have two separate sets of mitigating actions, of equal importance, to address.
If your firm is due to complete an ARROW assessment before spring 2013 it will still be reviewed. This review will now be done by two supervisory teams who will assess the risks against their new objectives and present their final reports to your Board.
What happens next?
If any of these changes have a direct impact on your firm, we will be in touch with you after 2 April.
Later this year both the FSA and the Bank of England will publish two further documents detailing how the PRA and FCA supervisory regimes will function. This will give firms a further opportunity to comment before these regimes go live.
For any further questions, call your usual FSA contact or the FSA contact centre.
