The FSA has used its recently published 2011/2012 Business Plan as an opportunity to set out the steps it is taking towards regulatory reform, which must be finalised by 2013. It has listed the key areas for its incoming work programme which has been restructured to align with legislation currently before Parliament and the Financial Services Bill.
These key areas are:
• Maintaining ongoing supervision in a period of continued fragility in the market.
• Continuing to influence the international and European policy forums, delivering in particular the new prudential regulatory agenda.
• Implementing the current European Union major policy initiatives, including Solvency II
• Delivering on the principal national sector initiatives to improve consumer protection - the retail distribution review and mortgage market review.
• Continuing to improve the FSA's operating systems and quality of staff.
• Implementing the government's regulatory reform agenda.
Along with the FSA's new statutory objective of delivering financial stability, the business plan is aligned with its existing objectives of delivering market confidence, consumer protection and a reduction of financial crime in turn with delivering the FSA's operational platform to move to the new regime.
The FSA will be divided into two new authoritative bodies, the Prudential Regulation Authority and the Financial Conduct Authority. The government has said that it expects the new authorities to be operational by 2013. The FSA states in the business plan that it has started moving towards the new structure with the replacement of its current risk and supervision business units with the Prudential Business Unit and a Conduct Business Unit..
The PRA operates as part of the Bank of England and will be responsible for the prudential supervision of about 2200 firms. Its objective is to contribute to the promotion of the stability of the UK financial system by regulating individual financial firms and minimising any disruptions caused if they fail. It will also work with the FCA and others to ensure the UK authorities have a strong voice in international policy making.
The FCA will be based on the legal entity of the FSA. Its objective will be to protect and enhance confidence in the UK financial system. Among other responsibilities it will focus on firms' dealings with customers, monitor firms' compliance with market abuse, prosecute for insider dealing and take on the responsibilities of the UK Listing Authority. It will also oversee the Financial Ombudsman Service, the Consumer Financial Education Body and the Financial Services Compensation Scheme.
Creating the PRA is going to cost between £75m and £250m and creating the FCA between £15m and £25m. This includes the preparatory work that already has taken place and further work such as IT and staff transfer expenses.
With the amendment of Financial Services and Markets Act under the Financial Services Act 2010, the FSA is required to contribute to the protection and enhancement of the stability of the UK financial system. According to the business plan, the FSA will do this by ensuring the firms regulated are robust and reducing the probability that the regulated firms might fail. This will be done by ensuring firms strengthen their capital and liquidity regimes, systems, controls and governance. Further support to the UK financial system will derive from continued active participation in different forums and institutions, such as the Bank and the Treasury.