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UK FSA Sends Out “Dear CEO” Letter Illustrating its New Interim Structure

The UK Financial Services Authority (FSA) has this week sent out a letter to CEOs detailing its new regulatory structure, as required under the recent government reforms to tackle oversight issues within the UK financial markets. The new structure includes the eventual transfer of the power of oversight of the banking and insurance industries to a subsidiary of the Bank of England: the Prudential Regulation Authority. In the interim, this restructure sees the FSA replace its Supervision and Risk business units with a Prudential Business Unit (PBU) and a Conduct Business Unit (CBU).

How this restructuring will impact the lives of data managers and risk managers currently engaged in projects focused on meeting incoming FSA regulatory requirements is yet to be determined. However, at the outset it seems like the labels on doors may be changing, but the faces with which firms will deal will remain (largely) the same. The respite from “discretionary initiatives” will also, no doubt, go down well with the much beleaguered back office functions.

The new organisation plan is available to download from the FSA website here.

In the meantime, here is the letter from the FSA’s chief exec Hector Sants:

“Update on transition to new regulatory structure

When I wrote to you in February I said I would update you again this month on our progress towards the new regulatory structure the government intends to introduce. You will recall the government plans to transfer prudential supervision of banking and insurance to a subsidiary of the Bank of England, the Prudential Regulation Authority, and rename the Financial Services Authority the Financial Conduct Authority, which will focus on consumer protection and market regulation.

We have today reached our first milestone on the way to this, with an internal reorganisation to help us evolve into the proposed new structure. This sees us replace our Supervision and Risk business units with a Prudential Business Unit (PBU) and a Conduct Business Unit (CBU).

I have attached an organisation plan to show you how this looks. As you will see, I will head the PBU and be supported by Andrew Bailey, who joins us today as a Bank of England secondee. Margaret Cole will be interim head of the CBU until Martin Wheatley takes up this role on 1 September2011.

This restructure begins a gradual process to ensure we are ready to transfer to the new structure. Part of this evolution will see us design and pilot new processes and train staff, and until this is done we will continue with integrated supervision of your firm and existing ways of working, such as our ARROW operating framework. As part of the preparation we will be looking at what the changes will mean in practice, such as what supervision will look like in the two successor bodies, how they will interact, and how processes like authorisation will work across two separate organisations.

We know this period will bring challenges, but we have a clear plan of what we need to do to make sure we are ready, and we are firmly on track to deliver by the intended timescales. We are focused on making sure our work creates minimal disruption for your firm, and so we will not be introducing any new discretionary initiatives during the transition period.

You are probably aware that the government has to introduce legislation to allow for the formal transfer of power from the FSA to the successor regulators. This legislation must go through debate, scrutiny and amendment in the House of Commons and then the House of Lords. The legislation will then receive Royal Assent, when the Bill becomes law, which we expect to happen during 2012.

We will give your firm more information on the high-level philosophies of the new bodies later this year. If you have any questions before then, please get in touch with your FSA contact. Your FSA supervisor will let your firm know, if they have not done so already, whether your FSA contact will change as a result of our restructure today.”

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