PRUDENTIAL REGULATION AUTHORITY (PRA)
Around 1,700 banks, building societies, credit unions, insurers and investment firms are – from yesterday – under the supervision of the new Prudential Regulation Authority (PRA). The PRA operates as part of the Bank of England, which has now regained some of the powers it lost to the Financial Services Authority when the FSA was formed by the Labour government in 1997. The PRA is expected to “promote the safety and soundness” of the companies it regulates. It is also tasked with looking after the interests of policyholders, particularly in the insurance sector. “It will adopt a more judgement-focused approach to regulation so that business models can be challenged, risks identified and action taken to preserve financial stability,” the government has said.
The PRA is located at 20 Moorgate, a short stroll from Threadneedle Street. Being part of the Bank, and so close to its headquarters, will allow the PRA to collaborate with its big brother – the new financial policy committee (FPC) – as well as the Bank’s special resolution unit (a body formed to deal with distressed banks). City A.M. revealed last week that the PRA is already looking into ways of creating a more level playing field for so-called challenger banks, in order to allow greater competition in the sector. The new regulator is examining the current system, under which some large building societies can hold just five per cent capital against a prime mortgage, while some small banks are forced to hold 35 per cent.
Around 1,200 staff will be employed by the PRA, the Bank has said.
As one of the most powerful men under the new set-up, Bailey will have influence over all three bodies. The PRA will be his main home, where the Bank’s deputy governor for prudential regulation will be CEO. Bailey will also be on the board of the Financial Conduct Authority and financial policy committee (see across page and below), as well as sitting on the Bank’s court of directors. He is used to spanning separate regulatory bodies, having joined the Financial Services Authority (FSA) in April 2011 while continuing his role as an executive director at the Bank. He first joined the Bank in 1985.
A partner at Slaughter and May, Randell will retire from the law firm at the end of August to focus on his new commitments. He was a central figure in the government’s efforts to recapitalise huge banks such as RBS that fell into trouble in 2008. He also advised on the resolution of Icelandic banks and helped the Portuguese ministry of finance with bank recapitalisations.
Cornish is returning to London after nearly two decades living and working in Yorkshire. He stepped down from his post as chief executive of the Yorkshire Building Society in 2011, the ninth year of leading the society that he joined in 1992. From 2007 to 2011 he sat on the FSA Practitioner Panel, becoming its chairman in 2009. He is also a director at wealth manager St James’s Place.
Cambridge graduate Gilmore spent 26 years at the Treasury before leaving in the mid-1990s for roles elsewhere, including a stint at Lloyd’s of London. She has also worked for the World Bank and the European Union as well as holding positions at British American Tobacco, UK Girobank, the Securities and Investments Board and, most recently, Zurich Insurance.
THE FINANCIAL CONDUCT AUTHORITY (FCA)
The now-defunct Financial Services Authority’s (FSA) watchdog-like role is transferred to the new, independent Financial Conduct Authority (FCA). Unlike the PRA and FPC, the FCA does not sit under the umbrella of the Bank of England, but instead will stand alone. Its role is to keep on eye on the behaviour of financial services companies, protecting consumers and cracking down on crime and unethical practices. However, the FCA’s powers go beyond those of an enforcer for existing rules. The new regulator will also have the power to pull financial products from the shelves if it suspects that there is a risk of mis-selling. The FCA will be able to ban suspect products for up to 12 months while it assesses their suitability, a move that has provoked concerns that financial innovation could be stifled. New head Martin Wheatley last week played down fears over the new powers. “We know that some in the industry are concerned about us using this power too hastily; I want to be clear that we know proportionate judgement is needed, and that is what we will exercise,” he said. “I do not expect us to use this power frequently, but both industry and consumers need to be clear that we will not hesitate to use these powers where we have serious concerns.” Unlike the PRA and FPC, the FCA will not be based in the City, but will remain in Canary Wharf where the FSA had been located. By staying at the same location as the FSA and adopting many of its core responsibilities, the FCA has faced accusations that it is just a rebranded FSA.
Wheatley returned to the FSA last September with a view to bedding himself into the regulatory role before the new FCA was officially launched yesterday. Seen as less fiery than the FSA’s executive chairman, Lord Turner, Wheatley had spent the previous five years as the head of Hong Kong’s Securities and Futures Commission. Prior to moving to Asia, Wheatley worked at the FSA’s listing authority advisory committee, but he also has experience outside of regulation, having served as deputy chief executive of the London Stock Exchange and once been tipped to head the bourse.
Like chief exec Martin Wheatley, Griffith-Jones also joined the FSA in September last year in order to settle in before the switch to the new FCA. An economics graduate from Cambridge, he worked at KPMG from 1975 until last year. His roles at the giant consultancy were spent in the audit and corporate finance divisions before he became joint chairman of KPMG Europe.
Davidson is one of the dozen board members of the new watchdog, moving from the FSA board, of which she had been a member since 2010. Her private sector experience includes roles at Baigrie Davies, Holden Meehan and Chase De Vere, while she gained an insight into the regulatory world at the Board of the Personal Investment Authority.
SIR BRIAN POMEROY
Pomeroy also moves across from the FSA boardroom to the FCA. He joined the FSA board in 2009 following a long and varied career that still includes a role as chairman of the Responsible Gambling Strategy Board. He was a senior partner at Deloitte Consulting until 1999, and now sits on the board of QBE Insurance Europe and QBE Underwriting.
A consumer rights activist, McAteer has been on the FSA board since 2009. Prior to that he spent 13 years at consumer group Which?. He founded the Financial Inclusion Centre where he remains a director and is chairman of the European Commission’s Financial Services User Group. He also founded the Hackney Credit Union and was on its board until 2007.
FINANCIAL POLICY COMMITTEE (FPC)
The Bank of England’s financial policy committee is tasked with preventing another crisis by monitoring market movements and the activities of regulators. It is expected to be less hands-on than the PRA or FCA, yet holds a greater burden of responsibility. “One of the reasons for the financial crisis was that no one felt it was their responsibility to monitor risks to the system as a whole, like excessive levels of debt,” chancellor George Osborne has commented, arguing that the FPC will do just that. It is also given an objective to “support the government’s economic policy” by attempting to boost growth. The FPC was officially born yesterday, but had been operating on an interim basis since 2011.
Like the Bank’s monetary policy committee (MPC), which decides interest rates, the FPC’s head honchos will hold regular policy meetings – although the FPC will meet quarterly, not every month. Its first official meeting will take place on 18 June. The interim FPC’s final act was to reveal, last week, a £25bn capital shortage among the UK’s top banks. The committee, following a statement from its policy meeting on 19 March, said banks have not fully taken account of expected losses, fines and PPI compensation payouts. The government has planned for the FPC to have power over the size of capital buffers that banks keep on exposures to specific sectors, as well as the buffers’ overall sizes.
SIR MERVYN KING
King steps down as governor of the Bank of England at the end of June, to be replaced by Canadian Mark Carney. Yet he will nonetheless go down as the first official head of the Bank’s financial policy committee, having been an instrumental figure in the redrawing of the City’s regulatory landscape. The end of his reign will mark a 23-year-long spell as a director at Threadneedle Street, where he took over the top job in 2003. He previously studied or worked at Cambridge, Harvard, and the London School of Economics, and the Massachusetts Institute of Technology.
DEPUTY GOVERNOR FINANCIAL STABILITY
Despite missing out on the top job at the Bank of England, Tucker remains a key player in global efforts to regulate the financial industry. He is a member of the G20 Financial Stability Board’s steering committee and chairs the Basel Committee on payment and settlement systems.
DEPUTY GOVERNOR MONETARY POLICY
Along with King, Tucker, and Fisher, Bean sits on both the monetary policy committee and the new FPC. He became a deputy governor at the Bank nearly five years ago and was previously its chief economist. Prior to joining the Bank he worked at the Treasury and the London School of Economics.
Incoming governor Mark Carney will begin his term as the Bank takes on a wider range of responsibilities than at any time in its history. After leaving Oxford University, Carney worked at Goldman Sachs for 13 years. More recently he was governor of the Bank of Canada and chairs the Financial Stability Board.
One of the more outspoken senior members of the Bank, whose views have on occasions clashed with those of incoming governor Mark Carney, Haldane nonetheless occupies a coveted seat on the FPC. He is the Bank’s executive director of financial stability and is also a member of the Basel Committee.
A recent addition to the FPC, Sharp’s years in banking are expected to bring a deep knowledge of the City to the table. For 23 years he climbed the ladder at Goldman Sachs, having moved to the banking giant from its rival JP Morgan. Still working in finance, he is also an Emeritus Trustee of the Royal Academy.
Formerly vice chairman of the US Federal Reserve, Kohn has crossed the pond to offer an external perspective to the FPC. From 1987 to 2002 he was secretary of the Federal Open Market Committee, the group that dictates American monetary policy. He is also a senior fellow at the Brookings Institution.
LORD (ADAIR) TURNER
Turner was until recently chairman of the FSA, having taken up the post in September 2008 at the peak of the financial crisis. Earlier that year he had also been appointed head of the government’s Climate Change Committee, having chaired the Low Pay Committee and the Pensions Commission.
Fisher sits on both the monetary policy committee and the FPC, a reward for serving the Bank since 1990. He was made executive director for markets four years ago and sits on several other senior management committees at the Bank. He previously worked at Warwick University.
Another March addition to the FPC, Taylor will step down from his role as chairman of Syngenta – the chemicals company – this month. Formerly the CEO of Barclays, the move to the FPC is a natural one given his work for Sir John Vickers’ Independent Commission on Banking, on which he was a member.
DAME CLARA FURSE
Furse brings a strong element of private sector experience to the FPC, having been chief executive of the London Stock Exchange for eight years until 2009. She was previously CEO of Credit Lyonnais Rouse, having also worked at UBS for 15 years. She holds several other non-executive directorships.