Insurance Post

Are you ready? A legislative deluge is heading your way

Anyone trying to keep track of the various proposed reforms of financial services regulation over the next few years will have to have eyes in the back of their head.

It seems that almost wherever you look in the UK, Europe and beyond someone is cooking up some changes. The major reform in the UK, of course, will be the replacement of Labour's tripartite regulatory system - the Bank of England, the Financial Services Authority and the Treasury - with a range of new regulatory units with new powers. A key element of the Coalition government's proposals is a substantial strengthening of the powers of the Bank of England coupled with the creation of a new Financial Conduct Authority. The FCA is the current front-runner as the name of the organisation that was originally penciled in to be called the Consumer Protection and Markets Authority.

Europe gets in on the act
The list of directives and regulations making their way through the labyrinthine procedures of the European Union is intimidatingly long. So long that a cynic might be tempted to wonder whether there isn't a deliberate policy of swamping the sector with consultations and drafts that it wearies of responding to them. There is hardly a sector of the retail or wholesale financial service market that isn't affected by this: hedge funds, derivatives, banking, insurance, pensions, securities, retail investments, venture capital and audit are all on the list.

If practitioners think that negotiating a way through this deluge is bad enough imagine the challenge facing those on the regulatory side of the fence. Financial Services Authority chief executive Hector Sants summed up the problem when he published the FSA's business plan back in March: "The 2011/12 business year for the FSA will be a difficult one. We have to ensure that we are operating effectively as a supervisor as well as taking forward the key policy initiative. The principal ones are progressing the domestic consumer protection strategy, implementing a number of key EU directives and influencing the continuing international regulatory reform agenda, all this has to be done at the same time as taking forward the preparations for a new regulatory structure. The regulatory reform agenda remains on track to ensure the new structure will be ready in 2012", said Mr Sants.

Parliamentary passage fraught with challenges
The FSA may find itself marking time if it is indeed ready before the end of 2012 because the pace of the Treasury's consultation and the increasing likelihood of a tough Parliamentary passage for the new structure suggests that we will be well into 2013 before the new regime is properly in place and operational. We are currently only at the stage where consultation has recently closed on a draft Financial Services Bill to enact the government's reform proposals. The huge number of responses (which can be found on the Treasury's website) will now be considered by a joint committee of both Houses of parliament which has been asked to report by 16 December. Faced with that deadline it is very hard to a Bill proper emerging before the end of the first quarter of 2012.

This would not leave sufficient time to debate it properly even allowing for the spill-over session in September, especially given the huge interest there will be in its progress and the vast scope there is for potential mischief making with it. As one example, you can already see Parliamentary forces being marshaled by the independent financial adviser community to use the debate to delay the implementation of the Retail Distribution Review. The influential Treasury Select Committee has positioned itself aggressively on this issue following a report it produced on RDR during the summer.

The committee asked for a delay in the timetable for implementing RDR beyond the current plan of 2013 and when this was rebuffed by Mr Sants and the FSA, the committee's chairman Andrew Tyrie went on the attack: "We need good conduct of business regulation but we have to make sure that the successor bodies are accountable and explain their decisions, not only to the industry but even more importantly to the millions of consumers who pay for their services". He said that the Treasury Select Committee planned to open a formal inquiry into the accountability of the Financial Conduct Authority - and that is before the Bill has even been presented to Parliament.

This all suggests the progress of the Bill will straddle two Parliamentary sessions and that it is likely to take about a year from start to finish, meaning implementation could drift deep into 2013.

While all this is going on the EU will be producing directives on Packaged Retail Investment products, Market Abuse, Financial Sector Sanctions, Audit Policy, Insurance Mediation, Money Laundering, Insurance Guarantee Schemes, not to mention a continuing debate about the implementation of Solvency II.

Keeping abreast of that lot will tax the best-resourced public affairs departments in the City.

Based on an article originally published in The Actuary, November 2011

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