According to the White Paper, the Conservatives consider that the current tripartite regulatory regime has inherent structural weaknesses, including that no single body has both the responsibility for macro-prudential regulation (ie maintenance of financial stability in the economy) and the powers to achieve it. In addition, the Conservatives consider that the Financial Services Authority’s (FSA) current dual mandate, covering both prudential and conduct of business regulation, has been a failure, with the FSA being overly focussed on conduct of business at the expense of prudential regulation.
Mr Hoban highlighted the Conservatives’ plans to give the Bank of England responsibility for macro-prudential regulation and also for micro-prudential regulation of systemically important institutions, such as banks, building societies and insurance companies. Such micro-prudential regulation is currently within the remit of the FSA. The remaining powers of the FSA would be taken over by a new regulator, the Consumer Protection Agency (CPA), whose focus would be on conduct of business issues and who would also act as a consumer champion.
It is apparent from the White Paper and Mr Hoban’s response to questions from the floor that a challenge in establishing such a regulatory regime would lie in the detail. For example, setting the dividing line between whether certain matters are prudential or conduct of business regulation and setting the dividing line between the micro-prudential supervisory roles of the Bank of England and the CPA. In particular, the White Paper does not confirm whether insurance intermediaries would be subject to prudential regulation by the Bank of England or the CPA, although Mr Hoban indicated that it was likely to be the latter.
Mr Hoban stated that the overall aim of the reforms was to ensure that the financial services sector was “valued and valuable”.
For a previous blog post covering the FSA’s response to the White Paper, please click here.
