In April 2012, the FSA moved to an ‘internal twin peaks’ model in relation to its supervisory functions, which involved splitting its integrated approach to supervision, making changes to the supervisory frameworks and risk assessment models, and reallocating supervisors between the Prudential Business Unit (PBU), headed by Andrew Bailey, and the Conduct Business Unit (CBU) headed by Martin Wheatley as FCA CEO designate. The Heads of the PBU and the CBU have been reporting direct to Lord Turner as Executive Chairman since 1 July 2012.
The FSA is now implementing a similar structure in relation to its authorisation process. The change will affect only firms that are to be dual-regulated once the Financial Services Bill is enacted and comes into force. For banks, building societies, credit unions, insurers and certain systemically important investment firms, assessments will now be carried out by both the Prudential Business Unit (PBU) and the Conduct Business Unit (CBU).
The process for submitting applications will not change, but the way the application is processed internally will. A CBU case officer and a PBU supervisor will be responsible for each application and they will coordinate to minimise duplication or the impact on applicant firms and individuals. The final decision will need to be agreed by both the PBU and the CBU to ensure a single FSA decision during transition to the new regulatory structure. The aim of the changes will allow the FSA to road test and begin to deliver, as far as possible, a model that will mirror the future authorisation procedures in the PRA and the FCA.
The FSA has said it continue to seek to meet its statutory deadlines (some press reports here and here have suggested that the authorisations process has been running close to, and in isolated cases over, the six month period).
In his speech to the British Bankers Association today, Martin Wheatley agreed that after legal cut over next year, the coordination and cooperation between the two regulators will be crucial – although it is important to recognise that the new regulators will both be independent, each looking at firms from a different perspective. He acknowledged that making this work effectively will come down to organisational culture within the new regulators. Perhaps slightly less reassuringly for dual-regulated firms caught between the two regulators, he concluded: “If issues come up, we will just have to try harder at making it work.”