In June 2010, the Chancellor announced the Government’s intention to create three new regulatory entities; the Prudential Regulation Authority (PRA), the Financial Policy Committee (FPC) and the Consumer Protection and Markets Authority (CPMA). Today’s speech outlined the regulatory philosophies that Sants expects the new entities to adopt.  
In respect of the PRA, Sants outlined that the PRA will be more focused on reducing the impact of firm failure than the FSA has been and relatively less on reducing the probability of failure. This will require supervisors to make judgements on, among other things, the gross impact of firm failure, business plans, systems, controls, culture and governance, capital, liquidity and asset quality and, crucially, on resolution planning.

Hector Sants said: „The proposed wording for the PRA’s statutory objective contemplates that firms will fail and charges the PRA with making sure that when failure occurs, it happens in a way that minimises disruption to the financial system. To achieve this goal, it will focus supervisory resource, particularly senior management resource, on delivering intensive, intrusive, judgement-based supervision focusing on the issues that matter to the safety and soundness of the firm. The FSA was in the past susceptible to accusations of ‘tick box’ regulation and it is vitally important that the PRA puts itself beyond the risk of such criticism.”

"The PRA will not be attempting to pursue a ‚zero failure regime‘. Persuading society that this is an acceptable goal will be a challenge." In addition, Sants stressed the importance of the PRA’s engagement with European bodies, recognising that most prudential policy implemented in the UK is now formulated at the European Union level."

In respect of the CPMA, Sants acknowledged that there needs to be a debate on getting the right balance between consumer protection and consumer responsibility. The CPMA will adopt a significant shift of supervisory resources away from firm-specific inspection to industry-wide interventions and an ability to deploy resources flexibly to tackle issues and risks. However, the shift from firm specific to thematic industry wide intervention will not be at the expense of maintaining a core inspection programme.

Sants said: "In my vision, the consumer objective for the CPMA is not one of advocacy or denial of the need for consumers to take their share of responsibility, but one which emphasises early and proactive intervention, a braver approach to enforcement and redress and a willingness to improve the consumer experience. In order to achieve this goal, the CPMA will need to be given more powers of intervention and disclosure than the FSA currently has. This issue needs to be more fully debated than it has to date."

Sants also discussed the need to move toward more rules based approaches to consumer protection rather than relying on market disciplines.

Press release