In a welcome u-turn on 17 November, HM Treasury dropped its proposal to transfer the Financial Services Authority's ("FSA") powers of prosecution to the new Economic Crime Agency ("ECA").

Following industry consultation on the financial regulatory architecture, HM Treasury announced yesterday that the FSA's powers of prosecution will lie with the new Consumer Protection and Markets Authority ("CPMA") rather than the ECA. HM Treasury also announced that the UK Listing Authority ("UKLA") will form part of the CPMA rather than being merged into the Financial Reporting Council as previously expected.

The decision will allay the fears of many in the city that the proposed division of powers by the coalition government would lead to disjointed market supervision and, ultimately, would undermine the FSA's recent efforts in tackling market misconduct.

It is clearly sensible that a single body should both oversee corporates listing on UK based exchanges and be able to deal with the ongoing trading of those securities on a civil and criminal basis. However, the announcement does beg the question, what will now become of the ECA? The government had originally proposed that the "white-collar" crime agency would, broadly, encompass the prosecution powers of the Serious Fraud Office, the Office of Fair Trading ("OFT") and the FSA. In its announcement, HM Treasury said it remains committed to creating "a strong and powerful new ECA to tackle serious economic crime coherently and effectively." Given that a significant part of the proposed role of the ECA will now be incorporated into CPMA, the necessity and perceived strength of the ECA will be called into question. Indeed, it is, at least, plausible for the OFT to argue that it too should to retain its enforcement powers on the basis that it would be nonsensical to split its prosecutorial function from its oversight function.

We will keep you up to date on future announcements on the changing financial regulatory landscape.