Sleeping at the Wheel: Regulatory Overhaul in UK Financial Industry
Following a string of oversight failures that led to the collapse of Northern Rock, payment protection insurance and still-evolving Libor interbank rate-rigging scandals, the UK regulatory authorities are cleaning up their act. Early this week, the Financial Services Authority’s (FSA) supervision and consumer protection divisions were restructured into three separate regulators, marking the second major revamp in recent times.
The overhaul will see the FSA replaced by the Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA), and the Financial Conduct Authority (FCA). The PRA is entrusted with the role of a Treasury while FCA will regulate financial firms and protect customers. The FPC run by the Bank of England will oversee PRA and FCA and have the overall responsibility for financial stability; something it last had in 1990s. Policy makers want separate regulators with distinct responsibilities, unlike FSA, which was trying to cover everything under one umbrella. The FSA’s ‘light tough’ oversight practices were largely blamed for the lending boom resulting in a sub-prime mortgage crisis first and then, in banking meltdown.
The financial crisis has been an eye opener for regulators all over the world and has brought to the forefront the need for more accountability in the financial system for ensuring financial stability. Though the analysts fear that massive regulatory changes could lead to turf wars, the new structure could be a key turning point in the regulation in UK.