The second of April 2012 has been outlined as a major milestone date in the regulatory reform programme for the Financial Services Authority (FSA). It is the day the authority will implement it’s ‘twin peaks’ model in preparation of the handover to the FCA and the PRA towards the end of the year.
The date was announced by Hector Sants, chief executive of the FSA, in a speech to the British Bankerss Association.
The new model will mean that as of April 2 building societies, insurers and major investment firms will have two groups of supervisors – one focusing on prudential and one focusing on conduct. All other firms (i.e. those not ‘dual regulated’) will be solely supervised by the conduct supervisors.
Sants explained that the FSA could not completely replicate the approach proposed by the Government in the Financial Services Bill published on 26 January, but he emphasised that the changes would go as far as possible to ensure that the cutover to the new regulatory structure in early 2013 will be seamless.
The key characteristics of the model include:
– Two independent groups of supervisors for banks, building societies, insurers and major investment firms, covering prudential and conduct;
– Supervisors making their own, separate, set of regulatory judgements against different objectives;
– ‘Independent but coordinated regulation’ designed to allow internal coordination between both conduct and prudential supervisors to maximise the exchange of information relevant to their individual objectives, but with supervisors still acting separately when engaging with firms; and
– Retaining the principle of seeking to ensure that regulatory data is only collected once.
“The move to twin peaks is an opportunity to drive home and further embed the move to forward-looking, proactive, judgement-based supervision,” Sants commented.
“It is an opportunity that must not be missed. We must crystallise the change from the old style reactive approach to the new style proactive approach.
“The most important change that will occur at twin peaks, in my judgement, is not the introduction of a new operational framework, but the opportunity to accelerate the process of behavioural change that the FSA embarked on when we began the reform of the supervisory process in the spring of 2008.”