FSA: New regulator won't stop firms failing

Speaking today at Reuters in London, Sants said the Prudential Regulation Authority – one of three new regulatory bodies – will make judgements on the gross impact of firm failure, business plans, systems, controls, culture and governance, capital, liquidity and asset quality and resolution planning.

Sants said: “The proposed wording for the PRA’s statutory objective contemplates that firms will fail and charges the PRA with making sure that when failure occurs, it happens in a way that minimises disruption to the financial system.

“To achieve this goal, it will focus supervisory resource, particularly senior management resource, on delivering intensive, intrusive, judgement-based supervision focusing on the issues that matter to the safety and soundness of the firm.

“The FSA was in the past susceptible to accusations of ‘tick box’ regulation and it is vitally important that the PRA puts itself beyond the risk of such criticism. The PRA will not be attempting to pursue a “zero failure regime”. Persuading society that this is an acceptable goal will be a challenge.”

Sants also said the Consumer Protection and Markets Authority, another new regulator, will adopt a significant shift of supervisory resources away from firm-specific inspection to industry-wide interventions.

He added that this shift would not be at the expense of maintaining a core inspection programme.

Sants said: “In my vision, the consumer objective for the CPMA is not one of advocacy or denial of the need for consumers to take their share of responsibility, but one which emphasises early and proactive intervention, a braver approach to enforcement and redress and a willingness to improve the consumer experience.

“In order to achieve this goal, the CPMA will need to be given more powers of intervention and disclosure than the FSA currently has. This issue needs to be more fully debated than it has to date.”

He said there may be a need to move towards more rules based approaches to consumer protection rather than relying on market disciplines.