Financial Services Authority, the name of thy doom is, er, one of a selection of rubbish acronyms – as detailed in HM Treasury’s white paper on UK financial reform, released on Monday.
We’ve thus now got a bit more detail on the FSA’s successors — which include the PRA, the FPC, and the CPMA. But frankly, it all adds up in the end to the BOE.
That is, the Bank of Everything — formerly known as the Bank of England. Which, when you think about it, is rather an uncomfortable acronym to consider.
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The Quasi-Fiscal Policy Committee
But this quasi-universal responsibility is certainly apparent. Not least with the Financial Policy Committee, which will be up and running as soon as this autumn.
This new bit of the BOE will be charged with bringing a lot of the macro-prudence stuff currently in vogue in banking policy circles to UK shores. So expect plenty of countercyclical buffers and wotnot in the near future, enforced by a brand new Prudential Regulatory Authority at firm level.
Well, great. But it’s the FPC’s links to the Bank’s Monetary Policy Committee, plus what the Treasury paper proposes as ‘secondary factors’ in the FPC’s role, that are curious. From the paper (emphasis ours):
Such factors might include, for example, the economic or fiscal impact of the FPC’s macroprudential decisions… The Government recognises the importance of balancing carefully the simplicity of a single primary statutory objective against the need for clarity and transparency around the factors that a public body should take into account in considering how to pursue its objective. It would be counter-productive to create a framework in which the FPC could not take effective action to meet its primary objective because of excessive constraints imposed by secondary considerations.
Dangerous ground, here. After all, when it comes to fiscal impact — financial stability is fiscal stability these days. As Willem Buiter has noted, even the European Central Bank has mutated into a quasi-fiscal actor, its oversight of financial markets having been transformed during the sovereign debt crisis.
There’s no such crisis in prospect for the UK — but the slow melding of financial, monetary and thus fiscal oversight is something to watch out for.
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The rather derivative CPMA
Still, while the FPC’s going to get a lot of attention in the proposals ahead of its installation in the autumn, here at FT Alphaville we’re just as interested in how the Consumer Protection and Markets Authority has been fleshed out.
Only, it firstly looks a bit familiar. After all, here are the CPMA’s functions:
• the conduct of all firms – including all firms authorised and subject to prudential supervision by the Prudential Regulation Authority (PRA) – in their dealings with ordinary retail consumers, taking a proactive approach as a strong consumer champion; and
• dealings in wholesale financial markets, including the conduct of all financial services firms in wholesale markets, firms providing market services (such as investment exchanges and providers of multilateral trading facilities) and market conduct more generally (including through the use of the existing FSMA powers to impose penalties on persons for market abuse to ensure the integrity of financial markets).
In short, the FSA reborn — but with a retail-friendly face. Oh, and a nice acronym.
There is a key difference though — this time around, the CPMA will have to juggle consumer protection with such huge changes in market services as the forthcoming revolution in derivatives trading, post-US financial reform.
And here’s where the Bank of Everything comes in again.
This revolution will probably involve an explosion in both clearing houses and central clearing parties, along with exchange-trading for derivatives — which makes the following division rather curious:
• the markets division of the CPMA responsible for regulating exchanges and other trading platform providers – this reflects the importance of the facilities they provide for dealing in securities and derivatives and the significance of the activities of the providers and users for market conduct regulation; and
• the Bank responsible for overseeing CCPs and settlement systems alongside its existing responsibilities for payment systems oversight – this reflects the systemic importance of these types of infrastructure, the significant capital requirements and exposures that CCPs have and brings the regulation of all three types of body together for the first time.
Well, perhaps this is all very prescient, given the warning signs we’ve noted about the potential systemic importance — and hence risk — CCPs may come to acquire. But it’s therefore rather odd to expect Bank executives to oversee the minutiae of CCP market infrastructure before we get to that point.
But that’s the brave new world of the Bank of Everything, we guess.
Related links:
The FSA will cease to exist in its current form – FT Alphaville
The banking miracle, debunked – FT Alphaville
The Lord is my central banker, I shall not want… – FT Alphaville