On 1 April the Financial Services Authority (FSA) was replaced by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). What are the implications for firms’ financial services practices?
DEEP IMPACT
‘In recent years there has been a fundamental shift in attitude to a far more aggressive, emboldened and intrusive regulatory approach. This has had a greater impact on regulated firms than the recent structural change is ever likely to have. The transition to the FCA, and the additional powers it has been given, is likely to just see the pressure on firms ratchet up even further.’
Chris Brennan, partner, Addleshaw Goddard
ADVERSE CONDITIONS
‘From our perspective the lines between supervisory action and enforcement action are becoming blurred.’
Elaine Penrose, Hogan Lovells
‘We expect to see a lot more aggressive supervisory actions from the FCA in particular – it’s been given much broader powers to remove and vary a firm’s permissions and to impose other requirements based on much more subjective grounds, so we expect to be involved in a far more adversarial supervisory relationship protecting our clients’ interests.’
Nathan Willmott, head of financial services investigations, Berwin Leighton Paisner
GREATER INVOLVEMENT
‘It’s crystal clear that there will be a bigger role for lawyers than there has been previously. The PRA and FCA are going to have a slightly different approach to the supplier than in the past. Firstly, they are going to be making judgements about people’s business, which will be partly subjective and, alongside this, they are going to be more about law enforcement.’
James Perry, partner, Ashurst
IMAGE PROBLEM
‘The important issue is whether the FCA wants to be a regulator that is feared or whether it would be better for everyone if it sought to be a regulator that is respected. It is a very powerful body and principles-based enforcement needs to be exercised with great care. The problem with enforcement and the principles being so central to the enforcement process is that there is a huge danger of retrospection. The principles are so open to interpretations at different points in time. You can’t judge yesterday’s conduct by today’s standards.’
David Scott, head of London financial institutions disputes group, Freshfields Bruckhaus Deringer
NEW CHALLENGES
‘A number of the new regulatory objectives look interesting and, coupled with the more dynamic and interventionist approach promised, will challenge regulated firms to think in different ways about compliance – and will throw up different challenges for their professional advisers. We will need to factor in conduct risk and the customer perspective into our work product to an even greater extent, support clients in refining and developing their innovations in a way that meets the regulatory objectives and learn to respond effectively to “judgement-led” regulation.’
Jonathan Rogers, partner, Taylor Wessing
DOUBLE TROUBLE
‘What we can expect to see is more of the same – an intrusive regulator that is more willing to wield its powers sooner and more aggressively. From our perspective the lines between supervisory action and enforcement action are becoming blurred, which is resulting in firms engaging us much earlier regarding their contact with the regulator than before. I query how joined up the PRA and FCA will be in practice. This could result in dual-regulated firms being exposed to a greater administrative workload and the risk of duplication and possibly conflict between the two regulators.’
Elaine Penrose, partner, Hogan Lovells
UNDER SCRUTINY
‘Having a bifurcated structure with separate bodies focusing on conduct and prudential issues should in theory mean there’s greater attention given to those different areas. The FCA’s powers are different to the FSA, and the intended approach is to subject firms to greater scrutiny and intrusion. The new approach gives rise to a greater potential for dispute and challenge so that the creation of the new bodies will result in clients needing more advice.’
Arun Srivastava, head of London financial services group, Baker & McKenzie
MAJOR CONCERNS
‘I have reservations about the bifurcated regulatory structure which may impede effective regulation; I have concerns about the conferral of extensive discretionary powers upon the FCA to achieve intensive supervision without adequate corresponding measures to ensure firms can challenge FCA supervisory action which oversteps the mark; and I’m not persuaded as to the merits of early publication of warning notices – the threat of which may be misused to force firms to settle rather than pursue an appropriate legal challenge.’
Robert Falkner , partner, Reed Smith
PRIVATE ISSUES
‘It seems like an awful lot of extra cost without immediately obvious benefit. There are numerous technical changes, which will throw up practical challenges for dual-regulated firms. Publication of warning notices is intolerable and something that we’ve lobbied strongly against for a long time. It’s a fundamental attack on due process under English law. Too often, the regulator doesn’t fully understand the business it’s enforcing against at the outset.’
Phil Bartram, partner, Travers Smith
COLLATERAL DAMAGE
‘There’s a strong political mandate for the regulator to act quickly and prevent damage to consumers and the reputation of the markets. It will not be criticised for doing that even if you end up with a few innocent casualties among firms and senior management. Firms need to be aware that the approach of the regulator is very much on protecting customers and integrity of markets. If some innocent firms fall by the way side as a result, the regulator will say that’s the price that has to be paid.’
Peter Bibby, of counsel, Bingham McCutchen