a new Financial Policy Committee within the Bank of England (the FPC ) responsible for macro-prudential regulation and financial stability ;

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1 Note on HM Treasury s Consultation Paper on the new UK Financial Regulatory Framework A new approach to financial regulation: building a stronger system 1 Introduction On 17 February 2010 HM Treasury published its consultation paper entitled: A new approach to financial regulation: building a stronger system (the Consultation Paper ). This follows a consultation paper published in July 2010 (the July Consultation ), and a summary response to the July Consultation published in November In the Consultation Paper, the Government confirms its proposals to replace the existing tripartite system of regulation, with responsibility for financial regulation shared between the Financial Services Authority ( FSA ), Bank of England (the Bank ) and HM Treasury, with: a new Financial Policy Committee within the Bank of England (the FPC ) responsible for macro-prudential regulation and financial stability ; a new regulator, the Prudential Regulatory Authority ( PRA ) with responsibility for micro-prudential regulation of firms that manage significant risks on their balance sheets (deposit takers, insurance companies, some investment firms); a new regulator, the Financial Conduct Authority ( FCA ) with responsibility for conduct of business regulation of all firms and prudential regulation of firms not subject to PRA regulation. The FCA had the working title of consumer protection and markets authority in previous papers. The Bank of England having responsibility for regulating clearing houses, settlement systems and payment systems ( Infrastructure Providers ). The Consultation Paper sets out the next stage of the Government s thinking, based on the results of the July Consultation, and continuing policy work by Treasury, the Bank and the FSA. The closing date for the Consultation Paper is 14 April. The Government has indicated in a progress report on the structural reform that it will publish a White Paper along with a draft Bill by the end of June The Government is committed to put the new financial regulatory structure in place by the end of 2012, and for the Bank of England and FSA to begin the transition across to the new structure in the meantime. In April 2011, the FSA will replace its current Risk and Supervision business units with a prudential unit and a consumer and markets business unit. More detail on the philosophy and operating models for each authority will be published by the FSA and the Bank of England later in the spring. In summary, the replacement of the FSA with this new structure proposed in the July Consultation was clearly not going to change, but there is considerably more detail in this paper on the role and powers of the FPC, PRA and FCA, something which was understandably lacking in the July Consultation, given the timeframe in which it was prepared. The Government has also taken on board the concerns raised by respondents to the July Consultation on the co-ordination of the respective duties and powers of the authorities, particularly with respect to dual-regulated firms, and there is a chapter devoted to these issues.

2 2 Executive Summary The Consultation Paper at a glance: Some detail on the tools that the FPC will have available to combat systemic risks these include the use of public pronouncements and warnings and the power to make recommendations to the PRA and FCA, and in certain circumstances direct them to take particular action. The Government does however emphasis that the FPC will have no power to regulate individual firms. The PRA is to have a slightly narrower regulatory focus than was suggested in the July Consultation the PRA is to focus on promoting the safety and soundness of firms, which will leave to the FCA supervision of system and controls related matters that do not relate to safety and soundness. The Government will also narrow the scope of the firms that the PRA will regulate by setting out objective criteria in secondary legislation to refine the number of firms that might be considered systemically important. Ultimately, however, the PRA will decide which firms it considers it needs to regulate. The Government emphasises that the FCA is to be the regulator of the whole of the market, from retail to wholesale, and not just a consumer champion. Retail supervision will nevertheless be a key concern for the FCA and it will have powerful tools to back this up including the power to ban products for up to 12 months and withdraw or amend misleading financial promotions. The FCA will also have the power to publicise warning notices signalling the commencement of enforcement proceedings. Much more thought has been given to co-ordination between the authorities, and conflicts that may arise between their duties, particularly when supervising dualregulated firms, and there are some policy solutions set out in the Consultation Paper. For example, both regulators are to be subject to a requirement to ensure that processes involving both regulators are managed efficiently. This could mean taking steps to combine or coordinate activities to reduce unnecessary burdens on dual regulated firms This note summarises key issues in the Consultation Paper. 3 The Structure The new structure is as proposed in the July Consultation, with a few tweaks (namely that responsibility for consumer credit is likely to pass to the FCA, this proposal was consulted on in December 2010, and that the UKLA will be part of the FCA) :

3 New Financial Regulatory Structure HMT BOE CCPs FPC PRA OFT Consumer Credit UKLA FCA Regulatory Capital SYSC relating to safety & soundness PRUDENTIAL Governance relating to safety & soundness RETAIL COB W/sale MARKETS MAR / TR PRUDENTIAL REGULATION Including client assets and EBA / EIOPA RISKY FIRMS ALL FIRMS LESS RISKY FIRMS ONLY AND RISKY FIRMS IN RESPECT OF MATTERS NOT RELATING TO SAFETY AND SOUNDNESS ESMA

4 4 FPC 4.1 Introduction The Consultation Paper focuses on refining the FPC s statutory duties and functions, and its levers and tools, as summarised below. See paragraph 4.7 below for an overview of the FPC s membership, functions and tools. 4.2 Statutory duties of the FPC The FPC will contribute to the Bank s overarching financial stability objective by focusing on systemic stability through macro-prudential regulation. Its statutory duty will be to monitor and take action to remove or reduce systemic risks, with a view to protecting and enhancing the resilience of the UK financial system. A number of respondents to the July Consultation were concerned that decisions taken by the FPC could have far-reaching effects on the financial sector and the economy more widely. A suggestion to combat this was that the FPC should have economic growth as a secondary factor to its statutory duties, and the Government is now proposing to draft the FPC s statutory duties so as to strike a balance between financial stability and sustainable economic growth. The Government is also proposing to frame the legislation so that the FPC must have regard to a number of other factors: proportionality (e.g. likely benefits of its actions compared with costs), openness (transparency in the work of the FPC) and international law (e.g. when making a direction, it should take into account whether there are any international law constraints with the recipient complying with that direction). 4.3 FPC functions The Consultation Paper provides more details on the tools that the FPC will have to take action once it has monitored and evaluated a systemic risk. These will include: public pronouncements and warnings, influencing macro-prudential policy in the EU and internationally, and powers to make recommendations to, and direct the PRA and the FCA (where provided for in secondary legislation). Public pronouncements can be used to raise awareness of issues e.g. the FPC may choose to issue a public warning where it has identified a potential mispricing of risk in relation to a certain asset type. The Government is proposing to legislate to give the FPC a broad power to make recommendations on financial stability directly to the financial sector, other bodies such as the Treasury, as well as to the PRA and the FCA directly. The FPC s recommendations will be made public to incentivise recipients to act on its advice. The primary route by which the FPC can take action to address systemic risks is indirectly via the regulatory powers of the PRA and the FCA. As such the Government proposes to provide for the FPC to have two broad main powers over the PRA and FCA: a power to recommend (to be complied with on a comply or explain basis) and a power to direct (to require the PRA or the FCA to implement certain macro-prudential tools, and over which they have no choice other than to implement). Example recommendations given in the Consultation Paper include recommending that certain types of business are consolidated on to balance sheets, or that firms

5 disclose certain information. The FPC s direction making powers will be subject to certain restrictions, in acknowledgement of the fact that it is a significant power of intervention. For example, a direction should be focused on system-wide rather than firm-specific characteristics. This is to prevent the FPC being able to overrule a regulator on a micro-prudential matter. 4.4 FPC macro-prudential tools A number of potential tools are being considered in various international forums, and the Government wants to support the adoption of a broad framework for their use at an international level. The precise scope of the FPC s macro-prudential tools are therefore not currently known, but likely to include: (a) counter-cyclical buffer requirements, (b) leverage limits, (c) variable risk weights (d) forward-looking loss provisions (d) collateral requirements and (e) ad-hoc tools created for specific circumstances. 4.5 Role of the FPC in relation to the PRA and FCA The Government states in the Consultation Paper that it envisages that the relationship between the FPC and the regulators take the form of a collaborative two-way exchange of information, advice and expertise relevant to financial stability. As set out in the July Consultation, the Government envisages the PRA providing information to brief FPC members on the most significant system-wide and firmspecific risks being tackled by the PRA at the time. Likewise the FCA will provide the FPC with information on any significant prevailing issues they are concerned with that could lead to financial stability risks. The Government also confirms that the FPC shall not have a role in firm-specific regulation of firms. 4.6 Information sharing and gathering within the Bank group and the FCA The Consultation Paper provides a bit more detail on the basis on the information sharing will take place within the Bank and with the FCA. The PRA will have powers to collect information from firms that they regulate, and also unregulated firms for financial stability purposes. The PRA will then be under a statutory duty to provide the Bank with the information that the Bank (and the FPC) needs to exercise its financial stability functions, including the operation of the special resolution regime. There will also be a statutory duty on the FCA to cooperate with the Bank, including on information sharing.

6 4.7 Membership, Functions and Macro-Prudential Tools Membership Functions Macro-prudential tools The FPC will be established as a committee of the Court of Directors of the Bank of England. It will have a total membership of 12. It will be chaired by the Governor of the Bank of England. Other members include: the existing Deputy Governors for monetary policy and financial stability; Hector Sants (Deputy Governor and CEO of the PRA); two Bank executives (responsible for financial stability and markets); the chief executive of the CPMA; four external members will be appointed by HM Treasury; one non-voting Treasury representative. Monitoring, to identify risks to financial stability including: monitoring activities of PRA and FCA for financial stability implications that derive from their actions monitoring the regulatory perimeter, to understand systemic implications of activities outside regulated area. Action to address vulnerabilities emerging risk and imbalances identified, including: deployment of macro-prudential tools; directing the PRA and FCA on deployment of their regulatory tools, if needed to protect financial stability; making recommendations in relation to other Bank of England activities (e.g. liquidity provision); recommending changes to PRA s and FCA s regulatory perimeter to HMT or to the FPC s macro-regulatory toolkit. Communicating to parliament and the public on their analysis any and action taken, including: six-monthly public reports summarising systemic risks etc identified by it; publication of minutes of its meetings, with arguments for and against decisions taken, within six weeks of meeting. Meetings: at least four times a year. Countercyclical capital requirements Variable risk weights Leverage limits Forward-looking loss provisioning Collateral requirements Quantitative credit controls and reserve requirements. Provision to be made in secondary legislation. Where necessary the FPC can direct the PRA or the FCA to apply the tools in accordance with its decisions.

7 5 The PRA 5.1 Introduction The Consultation Paper provides more detail on the PRA s role and the scope of its powers. See paragraph 5.4 for an overview of the PRA s proposed membership and functions. 5.2 PRA s role In the July Consultation Paper, the PRA s responsibilities were described in such a way that it appeared to be a conventional regulator of deposit takers, insurers and investment banks where dealing as principal. As such, it was anticipated that the PRA s regulatory function would be focused on the following areas: (a) regulatory capital, (b) systems and controls, (c) client assets/client money, and (d) governance, with all conduct regulations will be dealt with by the PRA. However, in the Consultation Paper, the PRA s objectives are described in narrower terms and the PRA will be focusing on financial stability, with an operational objective of promoting the safety and soundness of PRA authorised firms. This seems to suggest that the supervision of a firm s systems and controls and management will fall to the FCA in relation to matters not relating to safety and soundness. 5.3 PRA s Scope The July Consultation Paper provided that the PRA will regulate investment banks that have permission to deal in investments as principal, since such firms would be systemically important. However, as there are a very large number of firms that potentially fall within this category, the Government is proposing to provide objective criteria in secondary legislation to refine the number of firms that might be considered systemically important. The Government is proposing that BIPRU 730K firms will qualify for designation, but ultimately the PRA will decide which firms it considers it needs to regulate. The Consultation Paper confirms that the PRA will take a judgment based approach to regulation. This will focus on forward looking analysis as well as an assessment of how the firm would be resolved if it were to fail. The PRA will make use of principles and will enforce a purposive application and enforcement. This approach accords with the FSA s current interventionist approach towards regulating firms. The Consultation Paper envisages judgement based enforcement action, as opposed to enforcement action based on a breach of a rule. 5.4 Membership, PRA Firms and Functions A list of its membership and functions is set out below.

8 Membership and Functions Membership The PRA will be an independent subsidiary of the Bank of England. However, the Bank of England will not have formal power to direct the PRA to take firm-specific action. The Board will comprise of: The Governor of the Bank of England (Chair); The Deputy Governor as CEO (Hector Sants); The CEO of the FCA (ex-officio); the deputy Governor of financial stability (exofficio); and a majority of non-executive members appointed by HMT. Significant decisions on prudential regulation will be taken by the executive only. Non-executives will provide market-informed advice. Key functions will include: Functions Assessing the financial/prudential soundness of PRA Firms and taking appropriate action; Making prudential rules for PRA Firms; Authorisation of PRA Firms; Approval of individuals to perform certain controlled functions for PRA Firms. Conduct based functions approved by CPMA. Supervision of PRA Firms, and enforcement for non-compliance with its rules by PRA Firms; Approving recovery and resolution plans for failed institutions; Triggering the special resolution regime in relation to failed firms. raising funds for the PRA. A credible and intrusive approach required. Judgement-led, based on understanding business models and strategies, rather than tick box or rules-based regulation.

9 6 The FCA 6.1 Introduction The Consultation Paper provides more detail on the FCA s proposed objectives and function. See paragraph 6.7 below for details of its membership and functions. 6.2 The FCA s objectives Whereas the July Consultation Paper had talked about the FCA as a consumer champion, the Government is now backtracking on this, and the Consultation Paper emphasises that the FCA is to be a regulator of the whole market, from wholesale to retail, and not just a regulator of consumers. This is reinforced by the change in name from Consumer Protection and Markets Authority to Financial Conduct Authority. The FCA s strategic objective will therefore be to protect and enhance confidence in the UK financial system. This is supported by three operational objectives: facilitating choice and efficiency in the market for financial services; securing an appropriate degree of protection for consumers; protecting and enhancing the integrity of the UK financial system. In discharging its duties the FCA must also, wherever appropriate, seek to promote competition. The term consumer in the second operational objective is intended to apply widely, to cover users of services provided in the course of carrying on a regulated activity by any person, as well as investors participating in primary markets. 6.3 FCA s Retail Supervision In spite of the toning down of the consumer champion role referred to in the July Consultation Paper, retail supervision nevertheless looks to be a key concern of the FCA. The FCA will carry on the work already started by the FSA in taking a more preventative approach, and intervening earlier in the product life cycle to prevent detriment to consumers. This will entail greater scrutiny of firms product design and product governance, as well as the more traditional focus on sales and marketing. The main focus of the FCA s supervision will be on issues that affect a whole sector, subsector or type of product. This will see a shift in supervisory resource away from individual firms, with most firms no longer having a named supervisor, although they will be subject to a periodic review. A small number of firms that are considered to pose a risk to the FCA s objective will have a dedicated supervisor. The Government is also proposing to ramp up the existing powers in FSMA for a regulator to restrict the sale of products to consumers, or on product features, with new powers to ban a product of up to 12 months. The Government s thinking is to prevent consumers from being harmed, rather than waiting to intervene until there is clear evidence of retail detriment. In acknowledgment of the uncertainty the new banning power could cause for firms, the FCA will be required to publish and consult on a set of principles governing its use of the banning power. It remains to be seen whether this will give firms sufficient comfort in taking forward new products. In

10 addition, as the banning of a product could have consequences for the soundness of PRA regulated firms that would be of concern to the PRA, the Consultation Paper provides for the PRA to have a power of veto over an FCA decision (see paragraph 9.1 below). The FCA is also to be given a power to require a firm to withdraw or amend misleading financial promotions, and to publish the fact that it has done so. 6.4 FCA s Wholesale and Markets Regulation Recognising the sophistication of the wholesale market participants, the Consultation Paper states: the Government expects the FCA to take a proportionate and tailored approach to conduct regulation. However, the Consultation Paper also says making a sharp a priori distinction between retail and wholesale conduct regulation is neither straightforward, nor necessarily helpful. In particular, the use of product banning powers, although less relevant to wholesale conduct regulation, are not ruled out. The FCA s remit will include: Continuing work to monitor the conduct of market participants and their dealings with one another, including level playing field issues (reflecting new role to promote competition A strong focus on tackling market abuse and enforcing requirements under the listing regime Responsibility for regulatory oversight over client assets. 6.5 Enforcement The FCA will have the power to publicise the fact that a warning notice has been issued, indicating that enforcement action is to commence. This is in response to lobbying by consumer groups that this responds to information needs of consumers, and would be consistent with the approach of regulators in other sectors. Acknowledging the reputational damage that the publication of this information could cause, the Government is proposing safeguards to the use of this power: The power to publish is discretionary (and not a duty); The FCA is to consider the impact of the publication of the notice; If the FCA decides not to take further enforcement action after the notice is published, it must issue a notice of discontinuance. This power will also apply to the PRA, although the FCA is more likely to use it. 6.6 Financial crime Responsibility for taking regulatory action to counter financial crime will transfer to the FCA. It will be the competent authority for the purposes of money laundering legislation and will retain the FSA s criminal powers of prosecution for market abuse. The PRA will not have a formal role to combat market abuse, but will be alert to firms being used for or engaging in criminal activity. Accordingly the FCA and the PRA will need to work together to ensure that appropriate action is taken when necessary.

11 6.7 Membership, and Functions A list of its membership and functions is set out below.

12 Membership and Functions Functions Membership FCA will be a company limited by guarantee, financed by the industry. The board will be appointed by HMT. It will comprise of: the CEO of the FCA (Chair); the CEO of PRA HM Treasury and BIS will jointly appoint a proportionate number of non-executives to the board to ensure that appropriate expertise in these areas is available to the board. The Board will have rule making powers, but significant supervisory and regulatory decisions relating to individual firms will be reserved to an executive committee of the board, which will include only non-executives who have no conflict of interest. The power to make rules and the power to raise levies from industry to fund the FCAs work will be reserved to the FCA s board. The FCA will have responsibility for: regulating the conduct of business of all firms, including PRA Firms in both the retail and wholesale markets; authorising and supervising all non-pra Firms; and the prudential supervisory framework for non-pra Firms and PRA firms in relation to matters other than financial soundness ; granting permissions for all regulated activities for non-pra firms; supervising, and where necessary, taking enforcement action for noncompliance with its rules and policies; approving individuals to perform conduct-related controlled functions (undefined) for PRA Firms; approving all controlled functions where firms are solely regulated by the FCA; enforcing the Unfair Terms in Consumer Contracts Regulations in respect to financial services consumer contracts; raising of levies to fund the activities of the FCA and potentially the PRA; exercising the existing FSA responsibilities for the Financial Ombudsman Service, the Financial Services Compensation Scheme, and the Consumer Financial Education Body. regulatory oversight over client assets. civil and criminal powers that the FSA has in relation to the market abuse regime. conduct and prudential regulation of RIEs and MTFs regulation of financial crime In addition the UKLA will be a part of the FCA.

13 7 Bank of England 7.1 Systemic Infrastructure Providers As set out in the July Consultation, the Government is proposing to transfer responsibility for regulating and supervising Central Counterparties ( CCPs ) to the Bank of England alongside its payment systems oversight. The Consultation Paper proposes some changes to be made to the regimes for the approval of operators of relevant settlement systems under the Uncertified Securities Regulations 2001 and to the approval of CCPs under FSMA. These changes are to ensure that the Bank has the necessary powers to enable it to conduct an effective supervisory regime and to align the settlement systems and CCP regimes with the payments system regime. Amendments to the CCP regime under FSMA, however, will be kept to a minimum just to ensure that the Bank has sufficient powers in respect of CCPs. This is because many of the regulatory provisions relating to CCPs will be superseded by the European Markets Infrastructure Regulation, which is expected to be agreed by the summer. The Bank will cooperate closely with the FCA on a number of issues including on: Linkages with RIEs and other trading platforms regulated for prudential and conduct purposes by the FCA; Conduct of business issues relating to CCPs UK representation on ESMA (the FCA is the UK representative) Self-clearing exchanges and groups that include separate RIEs and CCPs. 8 Crisis Management Strategy The proposed crisis management framework requires co-ordiination between the Bank and its group (the FPC, the PRA) and HM Treasury. However, although the Bank will be responsible for most elements of the regulatory and resolution response to an emerging financial crisis, HM Treasury will remain in control of any decisions on the use of public funds. The government will establish a statutory memorandum of understanding (MoU) on crisis management between HM Treasury, the BoE and the PRA, which will be responsible for triggering firms into the special resolution regime.. This MoU will set out how the authorities should work together to identify and manage specific threats to stability. In particular, it will supplement what should happen after the Governor has notified the Chancellor of the Exchequer of any risks to public funds. 9 Regulatory processes and coordination 9.1 Duties to coordinate The Consultation Paper acknowledges the concerns raised by respondents to the July Consultation concerning the need for coordination between the different regulators and sets out in some detail issues to be tackled to ensure smooth co-

14 ordination between regulators, e.g. recognition of the need for clarity around the ability of each regulator to take decisions within its area of focus, and arrangements enabling PRA and FCA to manage any conflicts that arise. The Government s solution to this is to expand out the general duty to coordinate in the July Consultation with positive and more precisely specified legal duties on the PRA and FCA to coordinate their activities. For example, both regulators are to be subject to a requirement to ensure that processes involving both regulators are managed efficiently. This could mean taking steps to combine or coordinate activities to reduce unnecessary burdens on dual regulated firms. These duties will be supported by MoUs setting out how each authority will deliver on their duty. The Government has clearly given some thought to situations where the PRA and the FCA cannot agree an appropriate course of action, and provides for the PRA to have a power of veto in situations where it is necessary for the PRA to prevent the FCA from taking actions that might lead to a disorderly failure of a firm or financial instability. Clearly, the FCA s ability to take aggressive enforcement action in situations of wide-spread conduct issues in a firm may be compromised if the PRA believes such enforcement action could destabilise the firm. 9.2 Authorisation The Consultation Paper broadly sets out the FCA s and PRA s approach to authorisation of a new firm: the FCA will be concerned with ensuring that all new entrants to the financial services market meet the necessary conduct and consumer protection requirements. The PRA, on the other hand, will assess whether a firm is capable of managing its business prudently and to evaluate the soundness of a proposed business model. For firms that will be regulated by both the PRA and the FCA, both the FCA and the PRA must give their consent to a firm s application. To avoid firms having to apply to both regulators and go through two application processes, the Consultation Paper proposes two options: either the FCA could be responsible for processing applications (seeking the consent of the PRA), or the authority with prudential responsibility for the activity at the centre of the application would take responsibility. 9.3 Approved persons The approval process in respect of individuals is slightly different to that proposed for the authorisation of firms. For dual-regulated firms, the Government proposes that lead responsibility for controlled functions will be split between the PRA and the FCA. The PRA will lead on approvals of controlled functions connected to the prudential soundness of a regulated firm (e.g. significant influence functions such as CEO), consulting the FCA where it has an interest. The FCA will lead on all functions that concern the firm s interface with customers (e.g. anti-money laundering), consulting the PRA where it has an interest. In addition, either regulator can ban an approved person working in a dual-regulated firm, regardless of which regulator led on the approval.

15 This is a more complicated approval process than the firm authorisation process, and may prove to be a complex process for individuals applying for approval. This may particularly be the case where it is not obvious which regulator should lead on an approval. 9.4 Rule-making The proposed rule-making powers of the PRA and the FCA have the potential to lead to inconsistent rules relating to the same functions in firms. Both regulators have the power to make rules in pursuance of their objectives, and so there should in theory be no overlap. However, both regulators when dealing with dual-regulated firms may make rules applying to the same functions within the individual firms (although they are required to consult each other first). In the event of any dispute on the impact of a proposed new rule on financial stability, the authorities may consult the FPC. The PRA is also to be given the power to veto a rule proposed by the FCA if it considers that it would risk the disorderly fail of a dual-regulated firm or affect financial stability more widely. 9.5 Supervision of financial groups The picture so far as consolidated supervision is concerned is complicated. Consolidated supervision of groups is required by EU directives. For the most part, for banking and insurance groups, and investment banking groups for which the PRA has been designated as supervisor, the PRA will be the consolidated supervisor of the group. However, members of a consolidated group may be subject to solo supervision by a different regulator to that conducting the consolidated supervision. The Government is therefore proposing that the authority responsible for consolidated supervision should have a power of direction over the other authority, subject to a number of conditions and limitations (in particular the power can only be exercised over authorised entities in the financial group). In addition, the PRA veto in relation to financial stability will also apply. 9.6 Unregulated holding companies The Government is proposing a new power for a supervisor to give directions to any UK unregulated parent entity within a regulatory group structure. This will be of concern to groups with UK unregulated holding companies. 9.7 Change of control Whilst the Government is of the view that change of control applications are primarily of a prudential nature, in a dual-regulated firm the PRA will be obliged to consult the FCA. For example, the FCA may object on the grounds of conductfocused issues, such as risks of money laundering or terrorist financing. The PRA as the consolidated supervisor may also veto a change of control approval given by the FCA on systemic grounds. 9.8 White Collar Crime Agency The Government had indicated in the July Consultation Paper that it was considering transferring the FSA s criminal enforcement powers in relation to market conduct to the new Economic Crime Agency ( ECA ). However, the Government has backtracked on this, and is keeping these powers within the FCA. The

16 Government states that it is still committed to the ECA and will be publishing a consultation in the spring. 10 Implication of new structure for firms Although the FPC has no power to regulate firms directly, in practice its power to direct regulators to take particular prudential actions in relation to systemically significant firms would be placing it in the position of regulator of the firms concerned. Dual-regulated firms will need to deal with two rule books, that of the PRA and the FCA. There is likely to be issues of underlap and overlap to deal with. Firms may wish to consider involving the FCA earlier in their product/business development plans, given the FSA s new interventionist approach and the proposed product banning powers. With the move to issues-led supervision, and with less firms having a named supervisor at the regulator, firms will need to become adept at spotting issues in their own firms and engaging with the regulator.