The UK regulatory regime is currently in a transition process towards a twin peaks model, in which the Financial Services Authority (“FSA”) will be replaced by the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”). According to a speech given by Lord Turner, the FSA Chairman, at the FSA Annual Public Meeting on 3 July 2012, the FSA estimates that the transfer to the new regime will occur in April 2013, with the FSA and the Bank of England aiming to be ready from 1 March 2013. However, the timetable is dependent on the passage of the Financial Services Bill (the “Bill”) through Parliament and the time required to produce subsequent secondary legislation.
FSA Handbook split
As part of the change from a single regulatory to a twin peaks model, it will be necessary for the FSA Handbook to be split into two parts. On 1 June 2012, the FSA published a guide to its plans for forming two new Handbooks, one for the PRA and one for the FCA. As well as the minor changes, such as replacing references to the FSA with references to the relevant new regulator, the new Handbooks will include substantive changes to reflect the existence of two regulators with differing roles and powers. The FSA has said it will consult on these more substantive changes prior to the PRA and the FCA acquiring their legal powers.
The new Handbooks are expected to be published in draft form in early 2013, along with material on how to interpret them where this is not covered in the Handbooks themselves. Until the new regulators acquire their legal powers, the FSA will continue to make changes to its Handbook (which will remain in force until then) in the usual way. Once the PRA and the FCA acquire their legal powers, they will each amend their own Handbooks in accordance with the provisions of the Bill, which will require co-operation between the two bodies as well as external consultation.
Relationship with the FSCS
One aspect of the transition to the new regime which has previously not been clear is the way in which the PRA and FCA will interact with the Financial Services Compensation Scheme (“FSCS”). To deal with this concern, on 26 June 2012, the FSA published two draft memoranda of understanding, one between the PRA and the FSCS and the other between the FCA and the FSCS. These memoranda set out the respective roles of the FSCS and the new regulators, the oversight of the FSCS under the new regime, how information sharing will be dealt with, FSCS funding, and the reporting obligations of the FSCS to the new regulators.