The FCA will devote more resources to in-depth work with those firms it regards as having the greatest potential to endanger the FCA's objectives, and it will conduct more reviews of products and issues across a particular sector or market. There will be correspondingly fewer supervisors allocated to specific firms.

A new system of categorisation of firms (C1 - C4) will determine the style of supervision applied. C1 and C2 firms will have nominated supervisors, and C3 and C4 firms will be supervised by a team of sector specialists.

The FCA's supervision model will be based on three pillars: the firm systematic framework (preventative work through structured conduct assessment of firms); event-driven work (dealing quickly with emerging problems or events); and issues and products (fast, intensive work on sectors or products that are posing problems, based on sector risk assessment).

The firm systematic framework will differ from the current Arrow approach to supervision in several ways. For example: there will be continuous assessment for C1 and C2 firms; key drivers of conduct risks will be assessed based on business models; the assessment will result in a risk mitigation programme; and follow-up work will make greater use of reports by independent experts made under section 166 of the Financial Services and Markets Act 2000.

The FCA's approach to prudential supervision (for those firms that are not PRA-supervised) will focus on managing failure rather than reducing its probability. It will therefore concentrate on protection of client assets and ensuring that a firm can be run down without adversely affecting customers. FCA resources will be focused on C1 and C2 firms.

The FCA will be more interested in wholesale market conduct than the FSA has been in the past. The FCA will not draw a clear line between wholesale and retail conduct and will not automatically accept that no intervention is necessary because counterparties are sophisticated.

The FCA gives the following examples of when it will consider intervention in wholesale conduct:

Although these examples appear in the paper, there is still some uncertainty about the powers that the FCA will use to intervene in wholesale markets and the extent to which it will intervene in transactions between sophisticated counterparties.

The FCA will have a new competition objective and duty, and will use its regulatory rulemaking powers in particular sectors or markets to avoid undue barriers to entry, to encourage consumers to engage in such a way as to drive competition, and to avoid a firm or small group of firms dominating the market (for background, see feature article "Financial regulation reform: the role of competition").

The FCA will have 90 days to respond to super-complaints from consumer bodies and will refer any competition issues that require remedies outside the FCA's remit to the competition authorities.

The FCA will be more ready to intervene early to prevent widespread harm to consumers. Scrutinising firms' product governance (how they design, operate and sell products) will be a big part of this. Product providers will also have greater responsibility to ensure that products reach only the consumers that they were designed for.

If necessary, the FCA will use its new powers to make temporary or permanent product intervention rules restricting certain features in products or the promotion of particular products to some types of client. In considering the use of its power to ban products for up to 12 months without consultation, the FCA will consider the potential scale of harm to individuals, the effect on vulnerable groups of customers, whether particular features of the product give rise to potential detriment, and whether the product has been targeted correctly. The FCA's policy on product intervention will be developed further before 1 April 2013.

The new Policy, Risk and Research Division will gather intelligence on consumer behaviour and emerging risks to help the FCA target practices that exploit behavioural biases and analyse products, among other things.

The FCA intends to use its new powers to ban the worst examples of financial promotions, to ban promotions that mislead consumers and prevent them from making the best choice, and to send messages to other firms about what the FCA expects.

A firm that receives a ban for a promotion may make representations to the FCA, which will decide whether to confirm, amend or revoke the decision to ban. If the decision is confirmed, the firm will be able to refer the FCA's decision to the Upper Tribunal.

The FCA will continue the FSA's policy of credible deterrence. It will bring more enforcement cases, and seek tougher penalties for infringements of rules. It will pursue more cases against individuals and hold senior management accountable for their actions, and will target financial crime, fraud, money laundering and bribery in particular, and related systems and controls at firms.

The FCA will pursue criminal prosecutions in appropriate cases, including for insider dealing and market manipulation. It will also continue to prioritise getting compensation for consumers. In addition, enforcement action will be taken if particular aspects of a firm's business model or culture, such as product design/selection, training or remuneration practices, are likely to harm consumers.

The FCA will publicise its enforcement actions as much as possible, including using its new power to announce that an enforcement action has been commenced against a firm or individual.

When investigating a dual-regulated firm, the FCA may keep the PRA informed, conduct a joint investigation or, in rare circumstances, conduct a separate parallel investigation.

The current allocation of decision-making between FSA senior executives and the Regulatory Decisions Committee will be retained, and any future changes to the enforcement process will be subject to consultation.

The issues raised in the paper will seem familiar but the detail does clarify elements of the FCA's approach to regulation and it is a helpful step on the journey to the new regulatory regime.

The final rulebooks for the new regulators and further guidance are due to be published before 1 April 2013. It will be some time before we will be able to assess how the FCA works in practice, but the new rulebooks and policy guidance will provide a framework for using the new tools to add to the guidance provided in the paper.