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Rethinking the domestic and international architecture for regulation

The regulatory landscape is experiencing significant structural change that will impact the way financial institutions are supervised, in particular through the new macro-prudential tool kit.

International and European Union regulatory developments

In the aftermath of the financial crisis, international bodies such as the Financial Stability Board (FSB) have been given broader mandates and tasked with providing international direction in relation to emerging systemic risks. In December 2011, the Basel Committee on Banking Supervision (BCBS) issued for consultation a revised version for its Core principles for effective banking supervision, intended to reflect lessons from the financial crisis. The BCBS also announced in January 2012 that in future it will focus much more on the implementation, by BCBS members of the agreed rules and requirements which represents a significant new direction. As part of that the BCBS will monitor the status of members' adoption of the globally-agreed Basel rules, with reviews commencing in Q1 2012. As of January 2011, three new pan-European supervisory bodies with additional decision-making powers have commenced work: the European Banking Authority (EBA), European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA). In addition, a new European Systemic Risk Board (ESRB), responsible for macro-prudential oversight in the EU, has also been established.

UK regulatory developments

In the UK, the Financial Services Authority (FSA) will be dismantled and replaced by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). Additionally, a new macro-prudential authority, the Financial Policy Committee (FPC), will be set up within the Bank of England. In May, the Bank of England and the FSA published a joint paper which set out the current thinking on how the future PRA will approach the supervision of banks, building societies, credit unions and investment firms. In a separate paper published in June 2011, the FSA and the Bank of England outlined their approach to insurance supervision. In the same month the FSA also published a paper outlining the future FCA’s approach to supervision including scope, objectives and powers. Additionally, Hector Sants, Chief Executive of the FSA, gave a speech in May 2011 in which he outlined the PRA’s supervisory approach. In June, HM Treasury published a White Paper for consultation and the draft Bill, which sets out detailed policy proposals for reforming financial regulation in the UK. As part of pre-legislative scrutiny the Joint Parliamentary Committee published its report on the draft Bill in December, calling for greater oversight of the FPC, the PRA to be given responsibility for prudential regulation of market infrastructure and the FCA to be given a more explicit competition objective. The Treasury Select Committee published its own report on the FCA in January 2012. In December, the Bank of England and the FSA published a joint discussion paper on macro-prudential instruments, including a summary of each tool and historical experiences. The Government introduced the Financial Services Bill into Parliament at the end of January 2012.

External Reading list

More regulatory themes

  • Capital (including stress testing)
  • Liquidity
  • Governance and risk management (including remuneration)
  • Conduct of Business (Including MiFID)
  • Crisis management (including special resolution, systemically important firms and business continuity)
  • Regulatory perimeter
  • Disclosure, valuation and accounting
  • Information security and data privacy
  • Financial crime

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