OpinionJun 19 2013

Handbooks and the rules of regulation

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The FSA handbook was split to form two new handbooks for each entity. For dual-regulated firms (banks, insurers, and significant investment firms) both handbooks need to be referred to, whereas FCA-only regulated firms only need to refer to the FCA handbook.

The overall approach taken by the FSA was to transition existing rules to the new handbooks and make only amendments that were deemed to be necessary to implement the changes created by the Financial Services Act 2012. This essentially meant a three-stage approach of:

- Designating FSA handbook provisions that were to be carried forward.

- Making changes to certain provisions that did not involve policy changes (for example, updating references to FSA)

- Making more substantive changes.

The FSA had a statutory duty to consult with the public before making changes to its handbook under section 155 of the Financial Services and Markets Act 2000. Accordingly, before legal cutover, the FSA issued several consultation papers including: CP12/24: PRA and FCA regimes relating to aspects of authorisation and supervision; CP12/26: PRA and FCA regimes for Approved Persons; CP12/34: FCA handbook updates relating to supervision and threshold conditions and statement on the FCA’s new power of direction over qualifying parent undertakings; CP12/37: Implementing markets powers, decision-making procedures and penalties policies; CP13/6: FCA handbook amendments relating to the Enforcement Guide.

CP12/26 was a particularly important consultation paper in that the FSA consulted on changes to its rules and guidance to reflect a proposed split of responsibilities for controlled functions and approved persons’ approvals between the FCA and PRA. FSA feedback to the responses to its consultation papers including CP12/26 and final rules were set out in PS13/5.

The interpretation of the new handbook provisions has got trickier in the new regime and requires thought. The Guide to Designation – which has been jointly produced by the FCA and the PRA – states that where a handbook provision is made identically by both regulators, and so appears in both handbooks, a that provision should only be interpreted as applying to the FCA and/or PRA where it is within their statutory powers to make those rules.

The FCA and the PRA can amend their handbooks subject to public consultation as required under sections 138I and 138J of FSMA 2000, as amended by the FS Act 2012. In its approach document, the PRA has said that it is reviewing its handbook and intends to replace it with a rulebook. The difference between the handbook and the rulebook appears to be, at this stage, that guidance material will be strictly limited and that other types of material – for example, procedure manuals and information on how the PRA itself will act – will be published separately.

The PRA and FCA have been surprisingly quiet regarding changes to their handbooks. However, one would assume that much work has been done and is being done internally. Once this is complete we can expect a number of consultation papers from both regulators.

Simon Lovegrove is a lawyer with the financial services team at City law firm Norton Rose Fulbright