On April 1st, the U.K launched its new regulatory system for the financial services industry. Two new agencies will now oversee the country's financial firms: the Prudential Regulation Authority ("PRA"), housed within the Bank of England, and the Financial Conduct Authority ("FCA").

The PRA is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. Its statutory objectives are to promote the safety and soundness of these firms. The FCA is responsible for promoting effective competition, ensuring the functioning of markets, preventing market abuse, and for protecting consumers. The FCA also oversees those not supervised by the PRA.

The two new agencies have each issued publications describing their regulatory functions. The PRA published papers discussing its regulatory approach to: banking supervision, insurance supervision, and enforcement. It has also explained its approach to the supervision of securities settlement systems, central counterparties and recognized payment systems. And it has issued policy statements concerning management expenses and the designation of firms for prudential supervision.

One area in which the FCA intends to forge a new path is with respect to the design of financial products, not just their sale or marketing. Published by the Financial Services Authority ("FSA") prior to the FCA's launch, the Temporary product intervention rules will allow the FCA to take action before consultation when the FCA identifies a significant risk to consumers. In practice, the rules will allow the FCA to take action such as restricting the use of certain product features, requiring that a product not be promoted to some or all types of customers, or requiring that a product not be sold. FSA Press Release.

The FCA has also published a new policy statement governing how investment managers compensate the platforms which carry the investment managers' products. Under the new policy, investment managers will pay platforms a platform charge which is disclosed to retail investors. Cash rebates for non-advised platforms will be prohibited. The new policy will be effective April 6, 2014. Firms will be given two years in which to comply with the new policy.

Finally, the FCA has republished the methodology used by the FSA when it assessed whether U.K. banks and building societies were properly valuing their assets, realistically assessing their future conduct costs, and prudently calculating risk weights.