The current chief executive of the FSA told a meeting in London that the CPMA should be judged on the degree to which it minimises the amount of consumer detriment, which he said had been at an “unacceptable level” in the last decade.
“In future, the CPMA must therefore have a lower risk tolerance than that of the FSA,” he said.
The regulator’s process of inspecting regulated firms every four years would be the “minimum” under the new regulatory regime, he added.
The financial crisis has shown regulators should not rely on the judgement of firms and auditors, he said.
Currently medium and high-impact firms receive a supervisory visit from the FSA every one to four years, during which they are assessed using the Advanced Risk-Responsive Operating framework (ARROW).
Breaches and other indicators of risk may be followed up by the supervisory team.
But Sants said in the “new world” of the CPMA and the Prudential Regulatory Authority (PRA), the shift would be towards enforcing more detailed, prescriptive rules on firms.
It is likely the CPMA and the PRA will have different ARROW models to fit their different statutory objectives, he said.
He also hinted at in future shortening the “lengthy process of consumer intervention”, the FSA must undertake to propose and consult on new rules, rather than having direct executive power.
The PRA will introduce a formal, proactive intervention framework so it can take remedial action against firms “at an early stage”, he said.
But he emphasised that the body will not pursue a “zero failure regime”, as orderly failure with minimum costs to the economy was “acceptable”.
“The FSA was susceptible to accusations of tick box regulation. It is vital the PRA puts itself beyond this criticism,” he said, but adding, “the PRA will not hesitate to take further action,” when necessary.
Sants said the Financial Services Compensation Scheme (FSCS) would be developing “rapid payout mechanisms” to better deal with future firm collapses.
The prudential unit of the FSA will be replaced by the PRA and CPMA units by April 2011.
