Last week, George Osborne announced that the FSA will be transformed into a new prudential authority – the Consumer Protection and Markets Authority (CPMA) – and fall under the umbrella of the Bank of England. This new agency will replace the FSA as the new regulator of all financial services firms.
There will also be a Prudential Regulatory Authority (PRA) that will be in charge of prudential regulation of financial firms including banks, building societies and insurance companies.
So, how significant are these changes?
Without a doubt, handing power back to the Bank of England places the City under greater scrutiny. The central regulator will now operate from within the square mile, casting greater illumination upon the practices there.
The FSA is effectively a private company; as a subsidiary of the Bank of England, the new CPMA will be government-owned, and therefore subject to the same treatment as other nationalised institutions. However, staff will still retain the FSA’s pay and pension scheme, and will not benefit from bank pensions.
Chief executive Hector Sants has promised to stay for the duration of the transition, although it remains to be seen whether or not there will be a position for him once the CPMA has been created.
Significantly, the government has handed sizeable power back to the Bank of England. But are the banks in any position to be regulating themselves? Moreover, do they deserve to be? Arguably not, if last year’s banking crisis is anything to go by.
Only time will tell if the change will prove to make the FSA’s power diluted or stronger, or if it is merely a cosmetic change; labelling something old with a new acronym that inherits some, if not all, of the old attributes of the FSA.
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