By Sam Robinson, Nabarro LLP
A little over a year ago, the UK Government announced its proposals to reform the regulation of the UK's financial services industry.1 The UK's current financial services regulator, the Financial Services Authority (FSA), will be replaced with a number of different regulatory entities which will be responsible for different aspects of financial services regulation.
The PRA will be responsible for the prudential regulation of (broadly) those financial institutions deemed to pose a systemic risk to the stability of the UK financial system, namely banks, insurance companies and the largest investment firms.
The FCA will have responsibility for the conduct of business and prudential regulation of all other authorised firms, as well as the conduct of business of those firms that are regulated by the PRA (for prudential purposes).
As the conduct of business regulator to approximately 27,000 firms and the prudential regulator to approximately 24,500 firms, the FCA will take on a large number of the functions that were previously conducted by the FSA. However, the new regulatory system is not just a "separating out" exercise, but at the same time a change in approach to regulation. This article considers some aspects of the FCA's new role and how these differ from the FSA's approach under the current regime.
While consumer groups have welcomed this new power, the industry has questioned how it will be exercised and cautioned against the risk of poor decisions which could exacerbate the situation. The draft legislation requires the FCA to consult on the circumstances in which this power may be exercised and publish a statement of policy.
Apart from skilled persons reports, the draft legislation also contains provisions which will allow the FCA to impose harsher sanctions on sponsors who breach Part VI of the Financial Services and Markets Act 2000. This will include the ability to impose financial penalties which is not currently permitted.
Similarly the FCA will be able to make rules and impose sanctions on primary information providers (PIPs). PIPs are organisations approved by the FSA which operate as Regulated Information Services providers. Issuers use a PIP to disseminate information required to be disclosed under the applicable regulations to the market. This service was originally carried out by the London Stock Exchange's Regulatory News Service before this sector was opened up to more competition in 2002. PIPs have to comply with certain minimum standards, particularly for security, timely distribution and ease of use of the information they publish. Although PIPs currently have to be approved by the FSA, the proposed new powers do not currently apply to them.
Sam Robinson is a senior associate in the financial services regulatory practice at Nabarro LLP. Sam has advised a number of clients including banks, stockbrokers, fund managers and investment advisers on all aspects of financial services regulation. Prior to working in private practice Sam worked for seven years at the FSA, the majority of that time in the FSA's General Counsel's Division. Telephone: +44 (0) 20 7524 6836; E-mail: Sj.firstname.lastname@example.org.
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