UK regulatory regime

The Conservative Party first set out its plans to reform the regulation of financial services in the UK in July 2009. The proposals published at that time included abolishing the tripartite system whereby the Bank of England, the Treasury and the Financial Services Authority (FSA) share responsibility for national financial stability. In its place, the Conservative Party proposed that both macro and micro-prudential oversight should be given to the Bank of England which, it was argued, was best placed to monitor systemic issues across the financial services sector.

In his first Mansion House speech delivered in June 2010, Chancellor of the Exchequer George Osborne announced that the Coalition Government would move to address what he considered the "spectacular regulatory failure of the City". He announced that the tripartite regime would be abolished and the FSA would cease to exist in its current form. A new prudential regulator would be created, operating under the supervision of the Bank of England, and an independent Financial Conduct Authority (FCA) would be established to regulate the conduct of firms providing services to consumers. The Government proposed that the process of dismantling the current regulatory system be completed by 2012.

Early in 2011, the Treasury Select Committee urged the Government to revisit the Financial Services and Markets Act 2000 (FSMA) in its entirety to ensure a coherent piece of reforming legislation. In February 2011, the Government published A new approach to financial regulation: building a stronger system, in which it confirmed that the reforms would be implemented by amending FSMA. According to the Government, the decision was taken so that the changes could be implemented with greater speed, whilst minimising the disruption to firms that would arise from repealing FSMA and starting with an entirely new Bill.

The legislative process began on 26 January 2012 when the draft Bill had its first reading in the House of Commons. Shortly after, the FSA announced that it would be moving to a “twin peaks” style regulatory model (designed to replicate that adopted by the Prudential Regulation Authority (PRA) and the FCA) from 2 April 2012. As expected, the Bill completed its passage through Parliament by the end of the year and received Royal Assent as the Financial Services Act 2012 (FS Act) on 19 December 2012. The new regulatory structure came into force on 1 April 2013. The FSA ceased to exist on this date, with the PRA and FCA assuming responsibility for financial services regulation.

Under the new regulatory structure, insurers, reinsurers and Lloyd’s will be subject to dual-regulation, whilst insurance intermediaries will be regulated by the FCA only. In this section of our technical resource we include an article, which considers the new regulatory landscape for insurance firms in the UK. Additionally, we provide a blog detailing how the FS Act developed.

For a broader overview of regulatory reform in the UK, please refer to Phoenix - Our guide to UK regulatory reform.

For further information:

Insurance perspectives - reform of financial services regulation in the UK

Blog: Financial services reform (insurance)