Published on: Jun 21st, 2011
20th June 2011
The most significant modification in a decade to the UK’s financial regulatory architecture began to take shape on 16 June 2011 with the publication of the Government’s financial regulation White Paper. This provides some further detail on the Government’s proposed reforms to the UK financial regulatory regime and also contains a draft Bill to amend the existing banking and financial services legislation. It is envisaged that a Bill will be introduced to Parliament before the end of 2011 in time for Royal Assent before the end of 2012 and the full implementation of the new architecture by early 2013.
At 413 pages long, the White Paper is a weighty milestone in a process which formally commenced with the (as he was then) new Chancellor of the Exchequer George Osborne’s Mansion House speech delivered 366 days earlier on 15 June 2010. The Government’s plans for reforming the regulatory system include:
The Conservatives had actually flagged a year prior to their election win an intended move away from the much maligned “tripartite” model of shared responsibility for financial services regulation between HMT Treasury, the Bank of England and the Financial Services Authority. By restoring the Bank of England to the central role of economic and financial stability, George Osborne is reversing Gordon Brown’s 1997 changes to the way banks and other institutions are overseen.
Blueprint for reform
The White Paper provides a summary of the 350 written responses received to the February consultation and describes how this latest articulation of policy has been extensively informed by the previous consultation. Indeed, the White Paper does contain some new policy proposals as a result of stakeholder feedback which include:
Notable features of the regime discussed in White Paper include:
The White Paper poses a further 15 questions for response by 8 September 2011. However, the high level nature of the questions (which ask for general “views” and “comments” rather than definitive expressions of satisfaction or dissatisfaction with specific policy positions) reveals the amount of detail still to be determined over the course of the next 18 months. Accordingly, it appears that this is one regulatory initiative where the stock phrase of commentators “the devil is in the detail” won’t be appropriate as there actually isn’t that much detail yet. With so much still to determined, this should encourage regulated firms to take the opportunity to make their voice heard.
As far as the present is concerned, the FSA announced by way of Dear CEO letter dated 4 April 2011 that it was replacing its Supervision and Risk business units with a Prudential Business Unit (PBU) and a Conduct Business Unit (CBU). The FSA’s CEO Hector Sants heads the PBU, supported by a Bank of England secondee Andrew Bailey. Margaret Cole is acting as interim head of the CBU until Martin Wheatley, most recently the CEO of Hong Kong’s Securities and Futures Commission, takes up this role on 1 September 2011. The change in the FSA’s structure will give regulated firms some advanced experience of what life will be like from 2013 onwards. To many firms that are not systemically significant, this may not amount to a material change. With so many other regulatory changes to deal with at this time, this could prove to be a situation in which large dollops of status quo provide some relief and comfort.
While this current process of regulatory reform still has another 18 months to run, it looks likely to be concluded more quickly than the prior process (known as “N2”) which ran for a full parliamentary term from May 1997 to June 2001 (and slightly beyond).
Firms should keep abreast of the form and substance of the regime which will commence in 2013 as the detail emerges. However, by then many firms will have had to have responded to many of the other regulatory initiatives taking place such as the US’s Dodd-Frank, not to mention the EU’s lengthy agenda of reform.
The White Paper consultation itself closes on 8 September 2011. However, even before then more information will have been revealed on the future shape of the UK regulatory framework by then including:
Also later this year a paper detailing the coordination of the PRA and FCA will be published. So, keep watching this space!
The June 2011 white Paper builds on two previous HM Treasury consultations:
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