12/5/2016

TheriseandfalloftheFSAFinanceFundamentals:FinancialServicesaftertheBankingCrisisTheOpenUniversity

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Theexperiencegainedthroughtheoperationofthe1986Act,togetherwiththebreakupofthe
traditionalboundariesbetweendifferentfinancialservicesfirmsandtheperceivedneedto
reinforceinvestorprotection,thenpavedthewayforthereplacementofthemultipleregulatory
bodiesbyasinglestatutorybody.
TheunificationoftheregulationoffinancialservicesintheUKundertheFSAcameinstages
after1997.In1998,theresponsibilityforthesupervisionofthebankingsectorwastransferredto
theFSAfromtheBankofEngland.In2000theFSAthentookoverresponsibilityfortheUK
ListingAuthority(UKLA)thebodyresponsibleforsupervisingandregulatingtheissueof
listedsecuritiesbyfirmsfromtheStockExchange.
ThefinalpieceinthenewregulatoryjigsawcamewiththeenactmentoftheFinancialServices
andMarketsAct2000(FSMA2000).FSMA2000ledtothecompletionoftheconsolidationof
regulationoffinancialservicesundertheFSAfrom2001.TherangeoftheFSAs
responsibilities,whichweretakenonfrompreFSAregulatorybodies,issetoutinthetable
below.
PreFSAregulatorybody
BuildingSocietiesCommission(BSC)
FriendlySocietiesCommission(FSC)
InsuranceDirectorate(ID)oftheDepartment
ofTradeandIndustry(DTI)
InvestmentManagementRegulatory
Organisation(IMRO)
PersonalInvestmentAuthority(PIA)
RegistryofFriendlySocieties(RFS)
SecuritiesandFuturesAuthority(SFA)
SecuritiesandInvestmentsBoard(SIB)

Responsibilitiesofthebody
Buildingsocieties
Friendlysocieties
Insurance
Investmentmanagement
Retailinvestmentbusiness
Creditunionsandothermutualsocieties
supervision
Securitiesandderivativesbusiness
Investmentbusiness(includingsupervisionof
exchangesandclearinghouses)

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12/5/2016

TheriseandfalloftheFSAFinanceFundamentals:FinancialServicesaftertheBankingCrisisTheOpenUniversity

PreFSAregulatorybody
Responsibilitiesofthebody
SupervisionandSurveillanceDivision(S&S) Bankingsupervision(includingthewholesale
oftheBankofEngland
financialmarkets)
Subsequently,in2004,theFSAtookonresponsibilityfortheregulationofmortgages,andin
2005theregulationofgeneralinsurancebusinesswasaddedtoitsresponsibilities.
Afurtherdevelopmentthattookplaceduringthisperiodwasthedecisionoftheincoming
Labourgovernmentin1997topassresponsibilityformonetarypolicyand,specifically,the
settingoftheUKsofficialinterestratestotheBankofEngland.Previously,suchdecisions
hadsatwiththegovernment,withtheChancelloroftheExchequernormallytakinglead
responsibility.ThemovebroughttheUKintolinewiththeeurozoneandtheUSA(andmost
othermajoreconomies),wheremonetarypolicyisconductedawayfromtheworldofpoliticsby
thecentralbanks.WiththeBankofEnglandinchargeofsettinginterestrates,itarguablycould
notalsoperformtheroleofbankingsupervisor,giventhepossibilityofconflictsofinterest
betweenthemanagementoftheeconomy(particularlyinflation)andthebestinterestsofthe
bankingindustry.Thisprovidedtherationale,atthattime,tomovebankingsupervisiontothe
FSA.
TheestablishmentoftheFSAthereforeresultedinamoveawayfromtheselfregulationof
financialservices,wherecertainsectorswithinthefinancialservicesindustryregulated
themselves,asopposedtobeingregulatedbyaseparateandwhollyindependentbody.
RegulationbytheFSA,therefore,alleviatedtheconflictsofinterestthatcanpotentiallyarise
whensectorsofthefinancialservicesregulatethemselves.
Morerecently,followingthe2007/08globalfinancialcrisis(whichyouwillcoverinthenext
steps),planswereintroducedbythecoalitiongovernmentin2010toabolishtheFSAand
redistributeitsresponsibilitiestoother,new,regulatorybodies.Thetwonewbodiesthe
PrudentialRegulationAuthority(PRA)andtheFinancialConductAuthority(FCA)formally
tookovertheFSAsresponsibilitiesfromApril2013.Theresponsibilitiesandactivitiesofthe
PRAandtheFCAareexaminedinWeek2andWeek4.
(ImageCredit:HerveBoinay,viaFlickr.(ThisfileislicensedundertheAttributionNonCommercialNoDerivs
2.0Generichttps://creativecommons.org/licenses/byncnd/2.0/)/Text:TheOpenUniversity)

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