Regulatory challenges of 2012 – part 1: UK national regulation

Peter Moore, head of regulation at The IMS Group has outlined a number of regulatory challenges through the coming year.

1. 2012 is the final year/chapter of the FSA: out with a bang and thus a more threatening creature?

The FSA will likely want to finish on a high. It has gained some traction/respectability with enforcement successes in recent years, particularly in the area of market abuse. It is also spurred on by acknowledged supervisory failings (Northern Rock, RBS etc). The weapon of choice in recent years has been the “s166 report”, a statutory device by which the FSA can require a firm to commission, at the firm’s expense, a diagnostic and remedial review of a part of a firm’s business, or even its entire operation. The FSA has also shown a willingness to use recently gained tools in its armoury, such as injunctions to prevent future market abuse and to seize control of assets related to proven wrongdoing.

FSA enforcement cases in 2012 will increasingly be greeted by observers’ comments that it is intentionally going out with a bang. However, given that an enforcement case takes from one year to up to three or more start to finish, every single case concluded in 2012 will have commenced in 2011 or earlier. So that role of dishonour is already determined, having said that though firms will not wish to experience any of these in measures in 2012!

2. Increased regulatory costs/less value for money

The industry is paying for the transition to the new UK regulatory regime – a change which its former Chief Executive/Chairman, Sir Howard Davies, said in a speech was like rearranging the deckchairs on The Titanic. Firms may regard this as footing the bill for the FSA’s acknowledged failings, having also picked-up the bill as the FSA responded, on its own-initiative, to the 2008 financial crisis through intensive supervision and other new strategies.

Throughout all this change regulated firms may find that their interactions with the FSA are less “satisfying” than in the past – i.e higher fees, “poorer service” – particularly when their primary contact has changed.

3. Moving to the new world of interventionalism (nb also a feature of European regulation)

The transition from the FSA to FCA (by the end of the year) marks the beginning of an era of increasing interventionalism by the regulators. Could we even be moving to an era of overreaction by regulatory bodies as they move to an increasingly interventionalist approach, making forward looking judgements on firm’s judgements (in addition to assessing them in hindsight as they did in the past) and also their products? This will be the most interesting theme of regulation going forward and is the reason why the FSA has been trying to initiate a public debate about the type of regulator that society actually wants/needs.

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