The City to face years of uncertainty
THE City is facing years of uncertainty after the Treasury unveiled legislation to put in place three new regulators that will have powers to stop any business activity they deems too risky and apply different rules to different firms depending on their “risk profile”.
A white paper, published yesterday, sets out the government’s plans to abolish the FSA and replace it with three new authorities, which will sit under the Bank of England, making governor Mervyn King one of the most powerful regulators in the world.
Most financial firms will be subject to the Financial Conduct Authority, which will have “a range of new tools” such as “a new power to intervene to impose requirements on (or even to ban) products… and a strengthening of the FCA’s ability to tackle misleading financial advertisements”. It will alter the rules it applies depending on how risky it deems each firm.
But more serious, say observers, is the additional uncertainty that the City will face even as it struggles with a raft of new regulations governing capital, liquidity, pay and bankruptcy regimes. Pinsent Mason’s Tim Dolan says of the white paper: “Unpredictability will be an issue for firms going forwards and that’s not a good thing – but there’s no other way to do it right now.”
The new bodies will not be in place until early 2013, after which, Dolan adds, it will take at least “a couple of years” for them to “settle down”. “During that period there will be some instances of regulators radically challenging firms and products,” he says.
That unpredictability could be exacerbated by the new macro-prudential regulators’ responsibility for identifying where the economy is in its cycle and taking countercyclical actions to mitigate its highs and lows. The regulators’ powers could vary throughout the cycle.