In a speech to the British Bankers’ Association today, the FSA chief executive confirmed that it will split conduct and prudential supervision from 2 April, replicating the model that will be formed when the Prudential Regulation Authority and Financial Conduct Authority take over in early 2013.
The shift will see banks, building societies, insurers and major investment firms supervised by two separate groups of FSA supervisors, focusing on prudential and conduct regulation. All other firms will fall under conduct supervisors.
Sants said: “The most important change that will occur at twin peaks, in my judgement, is not the introduction of a new operational framework, but the opportunity to accelerate the process of behavioural change that the FSA embarked on when we began the reform of the supervisory process in the spring of 2008.
“The move to twin peaks is therefore an opportunity to drive home and further embed the move to forward-looking, proactive, judgement-based supervision. It is an opportunity that must not be missed. We must crystallise the change from the old style, reactive approach to the new style, proactive approach.”
He said that, for the twin peak approach to work effectively, firms must change the way they thought about regulation, aligning their goals with the supervisors and “society as a whole” and proactively comply with supervisory judgements.
Sants said: “I am not asking firms to forgo their right to challenge their supervisor if their decisions have not been properly made. I am suggesting that dragging their feet in complying with requests when it is obvious to all that the outcome is in the best interest of society as a whole, is not a behaviour which should survive in the new world.”
The two sets of prudential and conduct supervisors will operate separately, making their own regulatory judgements against different objectives, with the aim of “independent, but co-ordinated regulation”.
Sants said that twin peak regulation will provide clear objectives for the two supervisory groups, something lacking from the “old FSA” that had unclear objectives that were “not well articulated in FSMA, nor well understood by the media or Parliament”.
Sants added that the shift to twin peak regulation will work within the FSA’s current operational constraints, including keeping its overall headcount within 4,000.
Sants concluded: “It is really important that we must use this opportunity to accelerate the behavioural and cultural change needed in both regulators and firms. The new world of judgement-based regulation needs to be embraced by us all.”
