17/06/2010 Author: Shannon Hawthorne

UK Chancellor announces abolition of FSA

 In his first speech at the annual Mansion House dinner, Obsorne confirmed that the FSA will continue in its role as the UK’s financial advisory body until 2012 when it will be broken up, with the part that monitors financial institutions continuing as the “Prudential Regulatory Authority” but operating as a full subsidiary of the Bank of England.

Osborne also announced plans to set up a Financial Policy Committee at the bank and establish a consumer protection and markets agency.

The move has sparked concerns about the potential implications for the alternative investment industry.

“Any development towards better compliance is to be welcomed and this is clearly the ambition of the new government,” said Jerome Lussan, CEO of consulting firm Laven Partners. “However, the transfer of powers to the Bank of England must not be just for show and must address the true problem of regulation which historically has been the lack of enforcement.”

“This change could increase costs for asset managers which may enhance their desire to leave the UK which in turn would be hurtful to our economy and London,” he continued. “We hope the proposed consultation period is carried out efficiently - what we must avoid is any mess similar to what was caused by the Alternative Investment Fund Managers Directive in Europe.”

Contrary to general expectations, FSA chief executive Hector Sants will stay on through the transition as deputy governor and chief executive of the new prudential regulator, and will also sit on the Financial Policy Committee to be chaired by Governor Mervyn King.

In a recent speech at the Chartered Institute for Securities and Investment (CISI) conference in London, Sants argued that cultural and behaviour issues within firms contributed substantially to the financial crisis.

“Historically regulators have avoided judging culture and behaviour as it has been seen as too judgemental a role to play,” he said. “However, given the issues we continue to see over time, I believe this one-dimensional approach has to be questioned.

He continued: “Every other aspect of the regulatory framework is under scrutiny and we should not shy away from debating the culture question.”