As you may have heard, the U.K. is putting the FSA out to pasture at the end of the month. In its place on April 1 will sit the Prudential Regulation Authority—success guaranteed by the name alone—and the Financial Conduct Authority.
Why was this necessary? To quote the man who made it happen, Chancellor George Osborne, "When a system of regulation fails so spectacularly, people are going to ask what replaces it." This question was not asked of the equally spectacular failures of the Securities and Exchange Commission, but no matter: Neither President Barack Obama nor Congressional Republicans got elected promising to junk the SEC. But the Tories did promise to get rid of the FSA, and so it must go, making it two British governments in a row that have decided to start financial regulators from scratch.
By splitting the duties of the Financial Services Authority, policy makers hope to separate the daily monitoring of banks’ financial health from the policing of illegal activity like insider trading. The goal is to allow the separated regulators to focus on their own areas, instead of trying to cover everything from banks’ capital buffers to market abuse…
“When we look back, last year will be seen as the low point,” said Martin Wheatley, who will take control of the Financial Conduct Authority after six years with the Securities and Futures Commission, the regulator in Hong Kong. “The time is right; we can rebuild from here.”
While the U.S. reacted to the financial crisis with a whole raft of new powers and responsibilities for its regulators, the U.K. chose to simply distribute existing powers. This has not exactly put the fear of God in Britain's potential wrongdoers.
“Regulators never had a lack of powers — they had an unwillingness to use them,” said Bob Penn, a regulatory partner at the law firm Allen & Overy in London. “Regulators failed, not the regulatory structure.”
Both Mr. Bailey and Mr. Wheatley admit the new regulatory structure may not have stopped the recent failures that have blackened London’s reputation as a financial hub.