FSA break-up by 2012 hits RDR transition; Sants to stay on

The new Government has announced plans for a total shake-up of finanical services regulation to conclude in 2012, which is also the deadline for IFAs to meet RDR requirements.

Advisers will be worried that during the next two and half years, with many final RDR rules still to be announced, the FSA will be dismantled and control of their sector will pass to the new independent Consumer Protection and Markets Authority.

In a major about-turn, FSA chief executive Hector Sants will also stay on at the regulator to lead the transition to the new system as well as head the creation of the Prudential Authority, which will be a subsidiary of the Bank of England.

Despite saying earlier in the year he would stand down this summer, Sants will now become the first chief executive of the Prudential Authority and a Deputy Governor of the Bank of England.

The move will dismay Sants' many critics who blame him for failing to ensure the FSA regulated the banking sector properly during his three years in charge.

Many advisers' fears will also have been realised that Chancellor George Osborne's plans to abolish the FSA in its present form have not gone far enough and the regulator will be renamed but not reformed.

George Osborne confirmed the break-up of the FSA its current form last night in his Mansion House speech in the City. He said it had become a "narrow regulator, almost entirely focussed on rules based regulation".

He said the Government is proposing a new system of regulation "that learns the lessons of the greatest banking crisis in our lifetime".

The Government intends to handle the transition to the new system of supervision carefully and consult widely, with the process to be completed in 2012.

Osborne said: "I can confirm that the Government will abolish the tripartite regime, and the FSA will cease to exist in its current form.

"We will create a new prudential regulator, which will operate as a subsidiary of the Bank of England. It will carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies.

"We will create an independent Financial Policy Committee at the Bank, which will have the tools and the responsibility to look across the economy at the macro issues that may threaten economic and financial stability and take effective action in response.

"We will also establish a powerful new Consumer Protection and Markets Authority. It will regulate the conduct of every authorised financial firm providing services to consumers.

"It will also be responsible for ensuring the good conduct of business in the UK's retail and wholesale financial services, in order to preserve our reputation for transparency and efficiency as well as our position as one of the world's leading global financial centres."