Enhancing the FSA's powers - Reforming financial markets | Practical Law

Enhancing the FSA's powers - Reforming financial markets | Practical Law

Enhancing the FSA's powers - Reforming financial markets

Enhancing the FSA's powers - Reforming financial markets

Practical Law UK Legal Update 5-422-1217 (Approx. 2 pages)

Enhancing the FSA's powers - Reforming financial markets

by Simon Lovegrove, Norton Rose LLP
Published on 11 Aug 2009
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HM Treasury has published a White Paper (entitled Reforming financial markets) setting out the UK Government's plans for further regulatory reforms in response to the financial crisis. The plans include various extensions to the FSA's powers and objects, which are summarised here.
Earlier this year the FSA's CEO, Hector Sants, warned firms that they should be "very afraid" of the FSA. The FSA has put forward a new Supervisory Enhancement Programme (SEP) whereby the effectiveness and intensity of its supervision of banks is being increased. The SEP also requires the FSA to focus on the business models and strategies of firms, as well as the systems and processes they put in place to support this.
But for the UK Government this has not been enough. On 8 July 2009, HM Treasury published a White Paper, Reforming financial markets, which set out further proposals for regulatory reform in light of the financial crisis. Among the reforms that the UK Government proposed was an extension of the powers and objectives of the FSA.
The proposed extension involves:
  • The FSA being provided with a formal, statutory objective for financial stability and its rule-making powers extended to give it clearer legal authority to set rules the purpose of which is to protect wider financial stability.
  • The FSA's powers are extended to deal with individual institutions on a case-by-case basis through firm specific interventions.
  • The FSA to receive enhanced enforcement powers to enable it to deal with market misconduct. The Government proposes, within any limits set in EU law, to give the FSA a power to suspend individuals or firms for misconduct and to penalise individuals who perform a controlled function without FSA approval.
  • The FSA to be given the power to keep the scope of regulation under review, gathering necessary information from unregulated institutions to determine whether they pose a threat to stability and whether they should be brought under formal FSA supervision.
The extended powers came two days after the FSA said that it would double or triple the size of fines for misbehaviour and compliance failings, ushering in an era of penalties of GB£50 million or more.
Perhaps the time has come when we should start being very afraid of the FSA.
In the meantime, the deadline for responses to the Government's White Paper is 30 September 2009.