Twin Peaks for UK Banking Regulations

Hector Sants, Chief Executive of the FSA, has announced what he described as a ‘Twin Peaks’ approach to the future of banking regulation in the UK. Speaking at a briefing to the British Bankers’ Association in London on February 6^th,  he gave an update on the progress of reform to the British financial supervision system.

Opening shot from the cult TV series 'Twin Peaks'

As the British Government set out in its White Paper of June 2011, by early 2013

the FSA will be abolished, and replaced by two new organisations called the Financial Conduct Authority, or FCA, and the Prudential Regulation Authority, or PRA, a subsidiary of the Bank of England.  These two bodies will create a ‘Twin Peaks’ style regulatory model similar to those already in force in the Netherlands and Australia.   

The FSA and The Bank of England are jointly responsible for implementing the government's plan for reform, but their timetable is based on the assumption that The Financial Services Bill goes through the lengthy legislative procedure without a hitch.

Although the FSA will no longer exist in its current form, the current staffing level of 4000 will be maintained and the FSA IT system will also be retained.

The Twin Peaks model divides financial supervision into two separate entities responsible for prudential regulation (the PRA) and conduct regulation (the FCA). Nevertheless, regulatory data will only be collected once, and a common data infrastructure will be retained, Mr Sants assured his audience.  Between the two new bodies there will be a system of “independent but coordinated” decision making.

The PRA will concentrate on providing effective resolution mechanisms, and the FCA will focus on consumer protection.

In his concluding remarks Mr Sants stressed the importance of behavioral and cultural change by both regulators and financial firms in a “new world of judgement-based regulation” which must be embraced by all concerned.  I don't know if Agent Cooper would approve, but I'm off now for a damn fine cup of coffee and a slice of cherry pie.  Let's hope there are no fish in the percolator...