HM Treasury has today (26 July 2010) launched its consultation on the implementation of financial regulation reforms, originally announced by the Chancellor on 16 June 2010 (click here to see our original post and here to see our most recent post on the subject).

The consultation paper continues to focus on the UK banking system, with little mention of insurers and no specific mention of insurance intermediaries. However, it is possible to draw a few conclusions based on the information given:

– prudential regulation of insurers will be undertaken by the Prudential Regulatory Authority (PRA), a subsidiary of the Bank of England;

– insurers’ consumer-focused activities will be regulated by the Consumer Protection and Markets Authority (CPMA) (although this is described in the consultation paper as a “working title”), meaning that retail insurers will effectively have two regulators;

– insurance intermediaries will be regulated by the CPMA, both in terms of their consumer-focused activities and in relation to authorisation and prudential regulation;

– the Treasury is considering whether to bring non-financial services companies within a financial services group within the the PRA’s regulatory sphere; and

– groups which contain both insurers and intermediaries will have to deal with two different prudential regulatory regimes, undertaken by separate regulators.

The chief executive of the PRA will sit on the board of the CPMA, and vice versa, in order to ensure that the two authorities work together appropriately, although the preliminary impact assessment acknowledges that firms may incur transitional costs in making arrangements to deal with two regulators rather than one and may also face higher ongoing costs.

The Financial Ombudsman Scheme and the Financial Services Compensation Scheme will remain independent of the regulators, although the consultation paper calls for comments on whether the FSCS fits more closely within the remit of the CPMA or the PRA and, more fundamentally, whether the current system under which there is a degree of cross-subsidy between different classes of financial services firms should continue. A further consultation is expected to be launched in the autumn to discuss whether the regulation of consumer credit should be transferred to the CPMA.

The consultation closes on 18 October 2010.

Click here to download a copy of the consultation and accompanying press release and summary.