By Daniel Hunter
The Financial Services Authority (FSA) has published its business plan setting out its priorities for 2012/13, and the implications for the FSA’s budget.
The document outlines the FSA’s specific initiatives for the year ahead, which reflect the continuing challenges facing the financial services industry. This is likely to be the FSA’s final business plan before it splits into the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) in 2013.
This year’s business plan has been set against a very difficult macro-economic environment. Against this challenging backdrop, the FSA has been focused on delivering its statutory objectives and implementing the regulatory reform programme as set out by the government. For the coming year the main focus is on five areas:
- delivering the regulatory reform programme;
- continuing to influence the international and European policy agenda;
- delivering financial stability by maintaining ongoing supervision of firms in a period of continued fragility in markets including business model analysis, capital/liquidity assessments, recovery and resolution planning and the Significant Influence Function regime;
- delivering market confidence and credible deterrence; and
- delivering on the principal FSA initiatives to improve consumer protection: early product intervention, the Retail Distribution Review (RDR) and Mortgage Market Review (MMR);
Ahead of the split to the PRA and FCA, the FSA, will from 2 April 2012, move to a twin peaks model internally that will begin to reflect the shape of the new authorities. The new model will mean that banks, building societies, insurers and major investment firms will, from this date, have two groups of supervisors, one focusing on prudential matters and one focusing on conduct. All other firms (i.e. those not dual regulated) will be solely supervised by the conduct supervisors.
The FSA will maintain its policy of intensive supervision which includes business model analysis, capital and liquidity assessments and recovery and resolution planning. The key areas of the substantial international regulatory reform agenda will continue to be implemented particularly in respect of the banking agenda set by the Basel Committee and the wider policy agenda primarily mandated by the European Union.
The key ongoing prudential policy initiatives will be the Capital Requirements Directive IV, Solvency II and the recommendations of the Independent Commission on Banking.
The FSA will continue to maintain market confidence ensuring markets are resilient and fair and continue to enforce its credible deterrence agenda. The FSA will also conduct a review into whether further changes to the client assets regime are required following the lessons learnt from ongoing insolvencies, and the recent judgement of the Lehman Brothers International (Europe) client money Supreme Court Appeal. However, it is important to recognise that insolvency law and the Special Administration Regime is determined by primary legislation and not the FSA rules.
The consumer protection strategy, which seeks to actively anticipate consumer detriment and stop it before it occurs, will remain a priority with the FSA showing a greater willingness to make reality its commitment to earlier intervention where it sees potential risks to consumer detriment crystallising. The FSA will intervene where it sees unsuitable products with a high probability of being mis-sold, as well as where its sees firms with poor standards of product design or sales processes.
In addition the FSA will continue with its two principal initiatives within the consumer protection strategy which are the structural reform of the investment market through the Retail Distribution Review project (RDR) and the Mortgage Market Review (MMR).
“The year to April 2013 will be the last year for the FSA before it splits into the PRA and FCA," Hector Sants, FSA chief executive, said.
"We will nevertheless ensure we continue to deliver effective supervision and to support the development of the key European policy initiatives. From 2 April 2012 we will have moved to a twin peaks model within the FSA so an additional key element must be to ensure that we thoughtfully refine this model prior to the legal launch of the new regulatory structure and ensure that the benefits of the reforms we have made since the financial crisis are carried over to the new authorities.
“We have previously said that the budget for this year totals £578.4m, an increase of 15.6% in overall funding on the previous year. The FSA recognises that given the economic circumstances the industry faces, it is not realistic that the cost of regulation continues to rise at this rate in the long term, and therefore the new authorities will be very focused on controlling costs.
“However it should be noted that over the last 4 years these increased costs have fallen on the larger firms, rather than smaller ones. The percentage of the FSA’s budget funded by the top ten firms has risen from 17% in 2009 to 31% this year, and for the top 1000 firms has risen from 70% to 84%. As a percentage of revenues, not only have those firms outside the top 1000 seen their costs fall from 31% to 16%, they have also seen a fall as a percentage of their income on average.”
Join us on