Changes ahead for City regulatory authorities

Following the global financial crisis and recession in the UK during the latter half of the last decade, one of the priorities of the incoming coalition government has been to overhaul the current regulatory system that presides over the City.

Indeed, chancellor of the exchequer George Osborne used his first Mansion House address to announce his intention to throw out the tripartite regime - made up of the Bank of England, the Treasury and the Financial Services Authority (FSA) - claiming that his fellow ministers no longer viewed it as suitable.

His announcement spelt the beginning of the end for independent non-governmental watchdog the FSA, which the chancellor acknowledged would cease to exist in its current form, bringing to an end more than 25 years of regulation over financial services providers, both in its current incarnation and under its earlier name of the Securities and Investment Board.

But what will replace the FSA? And how will this affect those with finance jobs in London?

Outlining his plans in May 2010, Mr Osborne proposed replacing the tripartite regime with a new Prudential Regulatory Authority, which he revealed would operate as an auxiliary of the Bank of England. He also revealed that the new body would be singularly responsible for overseeing the daily prudential supervision of the UK's financial services providers.

However, this was not the only new body the coalition government hoped to establish. Looking to the future of the economy and monitoring risk will be the Financial Policy Committee, expected to be officially legislated by 2012.

Similar to the Bank of England's Monetary Policy Committee, the Financial Policy Committee will be responsible for closely monitoring any macroeconomic and financial issues that could pose a threat to the stability of the economy, along with addressing these risks. Made up of independent members, the body will be chaired by the governor of the Bank of England.

Finally, completing the set will be the Consumer Protection and Markets Authority. The task of this body will be to supervise the conduct of all financial services providers - making it the heir to the FSA. It is hoped that this will create a single and sturdy regulator for both wholesale and retail companies.

Altogether the new system will hand more power to the Bank of England. However, before the reforms become a reality, the old system and the financial services sector as a whole will be investigated as part of the Independent Commission on Banking.

Headed by Sir John Vickers, the commission has been given the task of reviewing the entire structure of the UK's banking sector and addressing the issue of financial services providers that are too big to fail - following the Labour government's bailout of Royal Bank of Scotland, among others, in 2008. It is due to report its findings in autumn 2011.

Should the proposals for the Consumer Protection and Markets Authority push ahead, the watchdog will have the task of increasing the confidence held in the UK's markets. It should also offer improved protection to UK consumers, by championing customer rights. It is believed it will take a tougher stance than its predecessor.

Speaking at the Treasury Select Committee this January, chief executive of the Office of Fair Trading John Fingleton also suggested that the new group should have the statutory objective of promoting competition particularly when setting out its rules, according to Money Marketing.

Meanwhile, the Prudential Regulatory Authority will have more of a focus on investment banks, insurance providers and high street money lenders that accept deposits.

Commenting at the time of the proposals, Mark Hoban, financial secretary to the Treasury, told the House of Commons: "The financial crisis has cost taxpayers dearly. The regulatory system needs radical reform to make the sector more stable and stronger."

He added: "The fundamental flaws of the [tripartite model's] architecture contributed to the failure in the banking sector and ultimately undermined economic stability. The continuing financial and economic uncertainty across the Eurozone strengthens the urgency with which we must equip ourselves with better tools and arrangements to tackle any future financial instability."

It remains to be seen whether a new financial regulatory model will indeed protect the UK from a future economic crisis on the scale seen in the last decade. However, some parties have urged caution with placing too much faith in the proposals. According to the BBC, former chancellor Alistair Darling pointed to individuals as the reason behind the failings of the old regulatory model, rather than its structure.

Meanwhile, the British Bankers' Association's chief executive Angela Knight said at the time of the proposals: "There are still questions that need to be resolved, such as the relationship between the Monetary Policy Committee and the Financial Policy Committee and how the FPC will be accountable for its actions."

She added that as there is no equivalent to the Monetary Policy Committee's interest rate target for economic stability, "considerable judgement" would need to be exercised over when intervention was called for.

Looking to the future, Martin Wheatley, outgoing chief of the financial regulatory body Hong Kong Securities and Futures Commission, is currently in the running to take on the role of leading the Consumer Protection and Markets Authority, according to the Financial Times. Joining him in this contest are Margaret Cole, director of enforcement at the FSA, former head of risk at Lloyds Banking Group Carol Sergeant and the Office of Fair Trading's John Fingleton.

While announcements on this position are expected later in the year, it may be some time to come before the true outcome of the new regulatory system can be judged.

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