FSA, CPMA & now FCA?

Retail financial services in the UK is currently regulated by the Financial Services Authority (FSA).

Proposals were in place to see the responsibilities of the FSA handed over to a Consumer Protection & Markets Authority (CPMA) and Prudential Regulation Authority (PRA).

The CPMA and PRA were being established to replace the current tripartite system of regulation which sees the responsibility for regulation split between the FSA, Bank of England and HM Treasury.

However, the Treasury has announced today that the CPMA will not be replacing the FSA.

Instead, they will be creating the Financial Conduct Authority (FCA).

The FCA will have three operational objectives – facilitating efficiency and choice in the market for financial services, securing an “appropriate degree of protection” for consumers and protecting and enhancing the integrity of the UK financial system.

It will run alongside the PRA which will be a part of the Bank of England and will carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies.

In the interim, the FSA is establishing a consumer and markets business unit in September which will eventually break away from the FSA to become the FCA.

Hong Kong’s outgoing financial regulator Martin Wheatley has been appointed as chief executive of the CPMA, now the FCA, becoming managing director of the FSA consumer and markets business unit in the first instance.

Confused? You have every right to be.

These changes to the regulatory system for retail financial services coincide with the implementation of the Retail Distribution Review which will see all financial advisers qualified to a higher minimum standard and operating on a more transparent remuneration basis.

In this current age of austerity, it is difficult to see how Government can justify making such radical and expensive changes to financial services regulation. Changing one letter from FSA to FCA is likely to cost the consumer around £50m.

On the positive side, the new Financial Conduct Authority will have to pay due regard to value-for-money and cost effectiveness considerations.

It will also have the power to ban financial products for up to one year in order to prevent consumer detriment. As things stand, the FSA has too little focus on product regulation and this is one reason why we are all now paying towards the massive cost of compensating investors in the failed Keydata Investment Services schemes.

Only time will tell whether the FCA represents a better form of regulation than the FSA. It will certainly be an interesting couple of years watching the current regulator evolve into the new one.

Photo credit: Flickr/shining.darkness