The Origins And Objectives Of FSAMA 2000 Michael Taylor

Outline Of Presentation  Background/overview of UK regulation  Factors leading up to the creation of FSA, and Financial Services and Markets Act (FSAMA) 2000  Regulatory Reform Strategy  Objectives of FSAMA

Overview Of UK Regulation  Historically a dual system: Self-regulatory/non-statutory (Banking, capital markets, Lloyd’s insurance market, professional associations) Statutory (Building societies, insurance companies, share dealers, money lenders)

Overview Of UK Regulation  Bank of England Informal control of banking system through “moral suasion” and incentives  Stock Exchange/Lloyd’s “club” rules  Department of Trade Insurance companies S.123 banks

Overview Of UK Regulation  Change in the 1970s and 1980s  Banking Act 1979 (and 1987)  Stock Exchange “Big Bang”  Gower Report & Financial Services Act 1986  Building Societies Act 1986

Factors Behind The Reforms  Role of the Bank of England Supervision of BCCI & Barings Monetary policy independence  Failure of “self-regulation” Pensions mis-selling Complexity  Market abuse

Factors Behind The Reforms  Scandinavian model of integrated regulation  The debate over ‘Twin Peaks’ “Convergence” or “blurring of boundaries” Regulatory efficiency  New Labour government

Factors Behind The Reforms  Industry concerns: London’s position as major international financial centre Wholesale/retail distinction Maintain practitioner input Complexity of regulation – duplication/overlaps Regulatory cost “Light regulatory touch”

Regulatory Reform  Government announcement on May 20, 1997  Emphasised deficiencies in Financial Services Act  Simplification. Clear allocation of responsibilities.  Integration of financial services – blurring of distinctions.

Regulatory Reform  Preparations for new regulatory agency made in advance of legislation  Planning team under Sir Andrew Large reported in July 1997  A number of unresolved issues: Scope of the agency Funding Governance etc.

Regulatory Reform  Securities and Investment Board changed name by special resolution to Financial Services Authority  SIB/FSA was body corporate – “company limited by guarantee”  Bank of England Act 1998 transferred banking supervision to SIB/FSA  Subsumed SROs. Other regulators followed

Regulatory Reform  Division of responsibility with the Bank of England  BoE still responsible for financial system stability (not precisely defined)  BoE’s Lender of Last Resort role continued  MoU between BoE, FSA, Treasury  Joint Committee

Objectives Of FSAMA 2000  FSAMA replaced multiple legislative acts: Banking Act 1987 Financial Services Act 1986 Insurance Companies Act 1982 Building Societies Act 1986

Objectives Of FSAMA 2000  FSAMA created only statutory outline, leaving detailed to be filled in by secondary legislation  Conferred powers on FSA  Defined FSA’s objectives and accountability  Created authorization regime  Created new offence of market abuse

Objectives Of FSAMA 2000  FSAMA also created Integrated Ombudsman scheme Financial Services Compensation Scheme  NB: No deposit insurance agency in UK Financial Services and Markets Tribunal