The Financial Services Authority’s final annual report is published, the ‘twin peaks’ model is praised and the FSA’s key objectives are evaluated
The FSA have recently published their 2011-2012 annual report that will be their last in their current form. The new ‘twin peaks’ system, described by FSA Chairman Adair Turner as capable of ‘delivering major benefits’, will consist of both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The change is due to take place in early 2013 and should ensure that financial risk management and business risk management run in parallel.
Risk Transparency and Risk Accountability
Hector Sants, the Chief Executive of the FSA, praised the regulator’s work by stating: 'Central to the success of a regulator is a willingness to be transparent and accountable for its performance. Our annual report lays out clearly how we perform in relation to our objectives as set out in the Business Plan.’ The report could be seen to clearly support the need for risk transparency and risk accountability within a company through its clear evaluation of the five key objectives set for 2011-2012:
1) Implementing the Government’s regulatory reform programme
Through their work with the Bank of England the FSA are on track to roll out the ‘twin peaks’ from 2013, having already used the system internally since April 2012. The system, which has been commended for its ‘facilitation of imperative interaction between macroeconomic and prudential analysis‘, is expected to deliver major benefits.
2) Achieving a credible deterrence and enforcement approach within 2011-2012
The regulation’s ability to manage financial risk has improved vastly through the year with five significant criminal cases in court and the highest ever fine for market abuse imposed on an individual of $9.6 million for Private Investor Rameshkumar Goenka.
3) Executing the FSA’s financial stability target
The FSA has supported the Financial Policy Committee (FPC) and has continued to influence the international and European policy agenda whilst focusing on the two biggest policy initiatives: Solvency II and Basel III.
4) Delivering efficient, clean, orderly and fair markets that remain attractive and sustainable
Implementing and embedding the existing European regulatory regime for Credit Rating Agencies and aiding the policy negotiation in order to revise that regime.
5) Continuing progress in managing a new consumer protection strategy
Continuing their work on key policy initiatives such as the Retail Distribution Review (RDR) and Mortgage Market Review (MMR) and ensuring adequate amends for customers affected by Payment Protection Insurance (PPI) and mortgage advice.
Hector Sants described these objectives as critical to the FSA while they progress with regulatory reform and stated that the FSA did as much as they could, given the circumstances of the financial crisis.
The abolition of the FSA has been underway since 2010. Its responsibilities will be separated between select organisations and the Bank of England. The twin peaks will be made up of the Financial Regulatory Authority, which will be policed by the banking system, and the new Prudential Regulatory Authority, which will handle the prudential regulation of financial firms. The Bank of England will cover all other responsibilities. Hector Sants will continue his work as Chief Executive by overseeing the process.
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Image: Overlooking London's Financial District, view from the Gherkin.
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