UK Government Launches Consultation on Reforming Financial Reporting
The UK coalition government has released a consultation document that provides further detail on its proposals for reforming the framework of financial regulation. The document, ‘A New Approach to Financial Regulation: Building a Stronger System’, builds on the government’s earlier consultation, ‘A New Approach to Financial Regulation: Judgement, Focus and Stability’, published on 26 July 2010, and the summary of consultation responses published on 24 November 2010.
The government welcomes responses from any interested organisations or individuals until 14 April 2011.
Michael McKee, partner at DLA Piper, commented: “The consultation paper provides more detail on how the government envisages the different bodies interacting – and how responsibilities will be split amongst them. It makes it clear that the government plans to proceed by amending the existing Financial Services and Markets Act, rather than by brand new legislation. This will be technically challenging in view of the significant nature of many of the changes – but suggests that there will be a degree of continuity.
“In particular, we understand that the new Financial Conduct Authority [FCA] will be built out of the FSA’s [Financial Services Authority] existing legal entity and powers – with modifications. It is the Prudential Regulation Authority [PRA] that will be a brand new legal entity. The FSA has already started to put the split between PRA and FCA into effect – and an interim Financial Policy Committee [FRC] has just been set up within the Bank of England a few days ago. The reorganisation process will be expensive for the regulators but will also result in significantly higher ongoing costs for them. These rising costs will be due to the increase in the number of agencies with which they will be expected to interact.”
David Kenmir, director in PwC’s regulatory practice, said: “Financial services firms have to face up to the tough reality of a more intrusive and onerous regulatory system. The proposal to hand the FCA powers to ban products, or limit their distribution for up to 12 months, will fundamentally change how financial services companies create and sell their products and is likely to make life a lot more difficult. If the FCA uses these powers appropriately and proportionally, the result will be better outcomes for consumers, fewer complaints and lower compensation scheme levies, which is in the longer term interest of the financial services market.
“The new UK regulatory structure is already a reality for financial services firms as the FSA has started reorganising internally to mirror the new structure and has redesigned its approach to conduct and prudential regulation. The implications of these changes are therefore likely to be felt well before the 2012 deadline,” he added.