UK Financial Services Authority to be Abolished

As has been widely reported, on 16 June 2010, the UK Chancellor of the Exchequer outlined his vision for the future regulatory architecture of the UK financial sector. He used the opportunity of the annual address that the Chancellor gives to the Lord Mayor's banquet at the London Mansion House to confirm, for the first time since the General Election last month, that the Financial Services Authority ("FSA") is to be abolished.

The Bank of England will sit at the head of the new regulatory structure with both the power and the authority to regulate monetary policy and financial stability, and will be in overall charge of macro-prudential supervision, as well as being responsible for the oversight of the micro-prudential supervision of individual institutions.

Most of the day to day supervision of the conduct of individual financial institutions that is currently handled by the FSA will move to a new body, the Consumer Protection and Markets Authority ("CPMA"), which will have responsibility for investor protection, day to day market supervision and regulation, and the overall business conduct of banks and other financial services providers.

Some of the FSA's current responsibility for the policing of economic crime such as anti-money laundering, insider dealing and, possibly, market abuse (although this is not entirely clear) will move to a new specialist body, the Economic Crime Agency. In addition, there will be two new committees. The Financial Policy Committee will be a permanent committee responsible for keeping under review the possible development of credit and asset bubbles and threats to financial stability. This committee will report directly to the Bank of England, so as to inform the Bank's decision-making. There will also be a powerful new Banking Commission, consisting of five high-profile members, which will investigate ways to reduce systemic risk in the banking system. It will report next year on the feasibility and advisability of splitting retail and investment banking.

The outline of this new structure is consistent with the promises made by George Osborne before the Election, and suggests that his views in this area have held sway over the less radical suggestions that had previously been made by his coalition partners.

There is, however, one less widely-predicted further proposal. The...