From April this year, regulation of prudential and conduct operations – both currently regulated out by the FSA – is to be carried out by two new organisations: the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
From 2 April this year, the FSA will move to a ‘twin peaks’ operating model. This model will largely reflect the way the two new organisations will operate in the future. It will mean changes to the way the FSA works with firms in preparation for the ‘legal cutover’ to the PRA and FCA.
‘Legal cutover’ is when the PRA and FCA will officially come into existence, and is expected to happen in early 2013. This is dependent on the Financial Services Bill being approved by Parliament.
The main change will be in the way that firms are supervised and in the risk mitigation process. The key changes are listed here, but more detail can be found in the briefing speech given by Hector Sants to the British Bankers’ Association (BBA).
Changes to supervision
Firms that are ‘dual regulated’, such as banks, insurers and major investment firms, will be supervised by two independent groups for prudential and conduct. These groups will work to different objectives and act separately with firms, but will coordinate internally to share information and data.
All other firms will be supervised by one supervision area for both conduct and prudential issues.
The supervision models will be different for the
PRA and FCA:
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prudential supervision will continue to have dedicated resources supervising firms; and
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conduct supervision will focus more on thematic work, and less on firm-specific work.
Changes to risk mitigation
The ARROW risk mitigation programme will be replaced by two separate risk mitigations programmes, one for prudential and one for conduct. Firms will have two separate sets of mitigating actions, of equal importance, to address.
If your firm is due to complete an ARROW assessment before spring 2013 it will still be reviewed. This review will now be done by two supervisory teams who will assess the risks against their new objectives and present their final reports to your Board.
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