Source: Mr G.M. Mangion¸ PKF Malta
As Publish on Sunday 12th May 2013 on Sunday Independent.
Last year the sudden discovery of a rogue trader¸ by the name of Mr Kweku Adoboli¸ who concealed trades that cost the Swiss bank UBS in London the sum of $2.3 billion resulting from misselling of loan insurance was shocking news indeed. As a consequence U.K. banks had voluntarily set aside more than id=”mce_marker”6 billion to compensate consumers after pressure mounting in the media created the perception that as a result of such scams the general public is not adequately protected notwithstanding the overlay of financial and banking regulation. This and other issues have persuaded the authorities to separate regulation from monitoring of banking operations in Britain. To give some background to the story one can observe how the UK with its mighty financial services sector has until recently boasted a single regulator called the FSA. Unfortunately due to a number of financial scandals that appeared since the onset of the recession in 2008 one can be excused for blaming the government for not reforming the unitary regulatory structure in time. Nevertheless to be fair¸ the blame cannot completely fall on the FSA which with its light-touch approach to regulation is now viewed as inadequate and the die has now been cast so that its monolithic structure is unceremoniously split into two entities: the Prudential Regulatory Authority (PRA) on the one hand and the Financial Conduct Authority which will be rebranded as the Financial Conduct Authority (FCA) with three areas of responsibility on the other.
The first covers conduct of business supervision of banks¸ insurers and major investment firms -this is followed by prudential and conduct of business and markets supervision of all regulated firms not falling within the remit of the PRA and finally the enforcement arm although it is important to note that the PRA will have equal powers as the FCA to impose penalties and fines for regulatory breaches. Starting from last year the FSA began to split the roles of the Prudential Regulatory Authority and the Financial Conduct Authority¸ the two agencies set to be introduced this year. It shall be subjecting banks¸ insurers and major investment firms to separate regulation for prudential and conduct purposes. The new regulatory structure intends to accelerate its move towards a bolder¸ more proactive and intrusive approach to regulation. The so-called “twin peaks” model which is being adopted¸ consists in the split between conduct and prudential regulation¸ and shall create two new supervisors for regulated firms. Now that in Malta the new Labour government is in its 100th day (reform mode) it is an ideal time to contemplate useful changes in the regulatory model since it is risky to hide our heads in the sands and ignore important reforms that are occurring overseas. Students of regulatory sciences in Malta may be wondering why MFSA (a single financial regulatory model) is still in existence when as a result of recent financial mishaps both locally and more so overseas governments have pushed for a reform in single regulatory behemoths. In brief the article will present a case for considering splitting the MFSA into two authorities –one harnessing the prudential regulatory function and another entity having separate management to oversee the financial conduct of regulated bodies. Placing all eggs in one basket comes at a price: just consider how the MFSA has an onerous responsibility for the direct supervision of all