Interviewer (Simon Lovegrove): Hello there and welcome to the latest Financial Services Fireside Friday. In this Fireside Friday we take at look at the FSA’s Business Plan which was recently published on 22 March. Peter, starting off, as the Financial Services Bill makes its way through Parliament, the Business Plan discusses further implementation work. Do you want to tell us a little more about this?
Interviewee (Peter Snowdon): Yes, I think there are three themes and Adair Turner deals with these in his introduction. The first is one that we are getting familiar with already which is the so called “twin peaks approach”, which is the split of the existing FSA into a prudential regulator and a conduct regulator and that is running along and he confirms that position. A second element is the move away to the PRA, the new regulator, to its new site and Turner discusses this and is looking ahead to the planning which will be made for that and also he confirms the number, quite interesting I think, 1100 people moving with the PRA. The third element then is the FCA element and Martin Wheatley and the plans that are being made for the FCA part of the regulator and the future there. So there are 3 clear elements.
Interviewer (Simon Lovegrove):I think one other thing to remember as well is that there is going to be ongoing work regarding the Independent Commission on Banking’s proposals, in the sense that primarily legislation is meant to be introduced in this Parliament for the retail ring fence. So there will be a lot of work to do with that.
Interviewee (Jonathan Herbst): One of the issues on that is how these two bits of legislation are going to link up and how those two timelines are going to link up. That’s a lot of work.
Interviewer (Simon Lovegrove): Absolutely. Jonathan, Peter mentioned just a moment ago the “twin peaks structure” which is operating in the FSA. Do you want to tell us a bit more about that?
Interviewee (Jonathan Herbst): I mean the official position is so called independent but co-ordinated regulation where you have got two sets of supervisors. One focused on prudential, one focused on conduct, still within the same organisation but effectively pursing two sets of objectives. It is early days yet, but I think we are beginning to see evidence of how that is working out. Obviously, in a sense, it is the pre-cursor for the actual split in about a year’s time but I think it is early days.
Interviewer (Simon Lovegrove): I also think that it is worth remembering that FSA will not be able to exactly replicate the approach proposed by the Government under the Financial Services Bill. Do you want to give us your thoughts on that?
Interviewee (Jonathan Herbst): It’s partly a legal point but it obviously has its current objectives and in pursuing those objectives it can’t move to the new legislation before it is actually in place. I think it can be over played though but it is a fair point. We have some practical experience of it coming the other way round when the SROs were being wound up and the FSA wasn’t yet in place. So it is a fair point, but again I think the key will be more evolution in the next year as we move towards the new regime and we see the realities of what is meant by prudential and conduct regulation. I think that is the really big issue for firms.
Interviewer (Simon Lovegrove): Absolutely. Keeping with the UK programme, client assets, protection of client assets, the FSA has stated in its Business Plan that this remains a key priority. Very much a hot topic at the moment - MF Global and the Supreme Court judgement of Lehmans. What are your thoughts?
Interviewee (Jonathan Herbst): Well look, we know there are going to be major changes to the CASS rules. The FSA has waited until the Supreme Court judgement. Now that that has come through there are going to be significant set of amendments in areas such as: Who is entitled to segregation? How does the distribution pot work? Is it the single pot model that we have now? Is it something more complicated? And also the question as to how it ties up with the insolvency regime? In particular the Special Administration Regime which is within the Treasury’s remit so the FSA and the Treasury and the new regulators are going to have to work closely together to make this work and I think the one thing for the UK is that it really has to get this right because as everyone knows there have been many criticisms of the UK regime, fair or unfair, it is important to keep business here.
Interviewer (Simon Lovegrove): Peter, the Business Plan talks about a lot of consumer protection initiatives, obviously it follows the Retail Conduct Risk Outlook. What were the headlines for you there?
Interviewee (Peter Snowdon): I think it’s worth just emphasising that actually, for those people who are active in that area, you do need to see these two publications together, they do link in. I think some of the themes we would recognise from the pervious year about certain high risk products and so on and the approach the FSA’s taking on that. Not surprisingly there’s quite a lot in there about the RDR as well and as the FSA moves into implementation of the RDR, we’ve had all the talk, and we’ve had all the background noise, now we’re moving towards implementation at the end of the year. Firms are, you know, going to have to concentrate on thinking about what that means to them in practice. Interestingly the FSA is talking also about the extent to which waivers may or may not be available, the general theme there is that they want to be consistent in their approach so they’re going to, you know, approach waiver applications as a group rather than individually. They obviously want to set a clear consistent approach in the way to which they deal with waivers.
Interviewee (Jonathan Herbst): And just to make one point on that. I mean it’s a great example in the retail space of how complicated regulation is now because it links up with European regulation. Because you’ve got the MiFID overlay and the compatibility which is argued to be there between the UK RDR regime and what is proposed to MiFID but we haven’t seen all the details of the PRIPS proposals yet. So, you know, I think you’ve got that European overlay so it’s a very good example of that theme.
Interviewer (Simon Lovegrove): Absolutely. That concludes this Financial Services Fireside Friday. Catch us next time. Bye-bye.
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