Regulatory Reform

A consultation paper on regulatory reform – CP12/24 “Regulatory Reform: PRA and FCA regimes relating to aspects of authorisation and supervision” was released on 12 September.

As will be known, the FSA moved to a ‘twin peaks’ operating model in April in the run up to cutover – no firm date save for “early 2013” – from the FSA to the PRA and FCA. Most firms will fall under the FCA for both prudential supervision and conduct regulation (Regulatory Roundup 39 provided a brief summary of the new regulatory system, including the impact on ARROW, in the article ‘FSA Business Plan 2012/13’). Banks and larger investment firms will be dual regulated: FCA for conduct regulation and the PRA for prudential regulation.

Although the title of the consultation paper sounds dramatic, and is 300 pages long, for legal cutover only the necessary changes that are needed for the new regulatory regime are proposed at this time so firms need not fear a need to learn a host of new rules in time for cutover.

Many of the changes are fairly modest, for example SUP 15 changes include substituting ‘FCA’ for ‘FSA’ or inserting ‘appropriate regulator’ when a matter could be relevant either of the new regulators if a dual regulated firm.

Having said that there are some areas, in additional to any necessary procedural changes, of change which firms may wish to note.

The general licence granted by the FSA in respect of the use of its logo will not be carried over to the new regime. As such firms will be restricted in the ability to use the FCA/PRA logos; changes to SUP 5 will reflect the new powers of the ‘appropriate regulator’ to itself appoint a skilled person to provide it with a report; Part 4 A is the new part of FSMA detailing requirements for permissions to carry on regulated activities so references to Part IV permission will no longer be relevant (although Part 4A will replicate the current Part IV with modifications to reflect PRA/FCA so no need for any actions by firms save to memorise the new term)

The proposed changes to the Handbook can be seen in Appendices 1 to 21 of the paper, although nearly half of these Appendices merely consist of ‘designation’ of the changes to the FCA and/or PRA. It will have been noticed that the FSA has been quietly designating Handbook provisions in its consultation papers e.g. see the article on ‘CASS Update’ in Regulatory Roundup 43. There are parts of the current Handbook that will not be adopted by either the PRA or the FCA, details of which can be found in chapter 12 of the consultation. These are largely transitional or expired provisions that are no longer relevant but also includes a part of FINMAR. Although not referenced in the contents, FINMAR 3 (‘Banking Act 2009) will be deleted in its entirety as it is felt that it adds limited useful information beyond the Banking Act 2009. As we know, FINMAR 2.2 to 2.4 is already scheduled for deletion as a result of the changes to the short selling regime (see Regulatory Roundup 43).

Further regulatory reform consultation papers are promised in the coming months including changes to Approved Persons/Controlled Functions regime and changes to the FCA Threshold Conditions guidance.

Comments should reach the FSA by 12 December.

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