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What we can learn from abolition of the UK FSA
Back in Indonesia, buzzes about revamping regulatory structure have been proliferating for months. And in many discussions, the abolition of the UK’s FSA is often cited, alas not accurately.
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Illustration of finance (Shutterstock.com/Number1411)
I
n 2013, the United Kingdom dissolved its Financial Services Authority (FSA). Many in Indonesia might have assumed that the move automatically restored the pre-FSA arrangement by putting the banking supervision authority under the Bank of England (BOE). The real story, however, was more complex than the common misreading.
To begin with, the dissolution was not about closing or merging of institutions for policy-expediency reasons. Nor was it offered as a panacea for interagencycoordination problems. Truth be told, it was about a bigger theme: paradigm shift in financial regulation.
The shift, as a consequence, has transformed the regulatory style in the UK by replacing integrated supervision with the objective-based approach or the twin peaks model. So clearly, the dissolution did not bring back a supposedly more effective older framework.
In the newest framework, jurisdictions are assigned to each “peak” based on objectives. One is responsible for prudential affairs while the other is tasked with regulating conduct.
Hence, reducing the number of regulators was not the goal. In fact, the FSA’s supervisory/ regulatory power is now distributed among three authorities: the Financial Policy Committee (FPC) — a policy court within the BOE, the Prudential Regulatory Authority (PRA) — the quasi subsidiary of the BOE, and the Financial Conduct Authority (FCA) — the renamed and restructured FSA.
On a side note, the UK’s regulatory style, for the last four decades, can be described as a series of experiments in search of a better approach. From 1986 to 1998, the country had adopted the self-regulation approach. Then from 1999 to 2013, it had briefly moved to integrated regulation. And since 2013, it has been experimenting with the twin peaks model.
Financial advancements require these experimentations to tune the balance of the threearm scale of financial regulation: efficiency, stability, and protection of consumer/investor.
