24 Jan 2012

Mind the Gap

In the wake of the financial crisis, the UK is moving to a twin peaks regulatory regime, designed to remove gaps in its supervisory system

The finer details of the new structure will become clear once the final version of the Financial Services Bill is published, probably in late Spring: meanwhile, the financial services sector is hoping that the government has taken its concerns about the new system on board.

The twin peaks system recognises the distinction between prudential issues (such as the soundness of firms’ balance sheets) and conduct of business issues (such as the way in which firms treat their customers). Separating the two functions will allow the supervisor on each side to have a singular focus and minimise tensions in regulatory priorities.

However, the sector worries about the potential for conflicts over the handling of prudential and conduct matters – say where the conduct supervisor wanted to take action on an industry-wide basis or at a particular firm that would have a significant impact on the prudential operation of the industry or business.

It is also concerned about increased regulatory costs through duplication, which supervisor will take precedence, the bodies’ accountability and their effectiveness in Europe.

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