In the annual Mansion House Speech on 16 June 2010, the UK Chancellor announced his intention to abolish the tri-partite system of financial regulation established by the former Labour government. The new regime to be introduced will feature a new prudential regulator for financial firms including banks, building societies and insurers, which will be a subsidiary of the Bank of England and a new Financial Policy Committee of the Bank of England to oversee macro prudential and economic issues – described by Mervyn King, Governor of the Bank of England, as the “twin peaks” model.

In addition, a new Consumer Protection and Markets Authority is to be established, which will regulate the conduct of every authorised financial firm providing services to consumers.

The process is expected to be completed in 2012.

Hector Sants, chief executive of the FSA, who had previously announced that he would step down from the FSA in the summer, has agreed to remain at the FSA to oversee the transition and will become the first new deputy governor and chief executive of the new prudential regulator. Andrew Bailey, at the Bank of England will lead its transition team and will become Sants’ deputy at the new regulator.

In common with most statements on financial regulation in the past two years, little mention was made of the insurance industry in either the Chancellor’s speech or that of Mervyn King.

The Financial Secretary to the UK Treasury, Mark Hoban, will set out more details in a speech to Parliament on 17 June 2010.