MEET THE CITY’S NEW REGULATORS
● THREE NEW BODIES
The tripartite regulatory system, in which the Bank of England, the FSA and the Treasury governed the City, is to be abolished. It will be replaced by three new bodies: the Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
● FINANCIAL POLICY COMMITTEE
The FPC, to be headed by the Bank of England governor, “will be a powerful new authority sitting at the apex of the regulatory architecture”. The short of it is that the FPC will be at the same hierarchical level as the Monetary Policy Committee (MPC) but will be in charge of monitoring systemic risk and decreeing macro-economic responses such as a tightening of credit if it deems the economy to be entering a bubble. It will delegate responsibility for enforcing these measures on individual firms to the Prudential Regulation Authority (PRA).
● PRUDENTIAL REGULATION AUTHORITY (PRA)
The PRA, to be led by current FSA chief Hector Sants, will sit outside the Bank but will be a subsidiary subject to the FPC’s authority. It will both monitor firms and feed information back to the FPC to create a complete macro-economic picture of the financial landscape. The Treasury is keen to stress that it will not take a “box-ticking” approach and will be “intensive” and intrusive if necessary. It will also have the power to adopt different approaches for different firms depending upon their “risk profile”.
● FINANCIAL CONDUCT AUTHORITY
This body, which will act as a consumer watchdog, will sit outside the Bank but will be subject to its authority. Its main role will be to police firms and intervene to stop them from exploiting consumers.
● CULTURE
Overall, the Treasury claims the new system will generate a “judgement-based” approach, with regulators applying principles rather than rule books.
● TIMELINE
The aim is to pass the legislation next year after cross-party consultation and have the bodies in place at the start of 2013.