Treasury unveils plans for FSA-FRC merger

The new coalition government plans to merge the Financial Services Authority and the Financial Reporting Council to create a companies commission similar to the US Securities and Exchange Commission.

In its consultation paper A new approach to financial regulation, the Treasury set out its plan to combine the FSA’s activities as the licensing authority for listed companies with the regulatory functions relating to company reporting, audit and governance overseen by the FRC.

“There is a strong case for a powerful companies regulator established with responsibilities for regulating corporate governance, corporate information and its disclosure, and the stewardship of companies by institutional shareholders,” the whitepaper argued.

As part of a package of institutional reforms, the government will set up a new Financial Policy Committee (FPC) within the Bank of England to take primary statutory responsibility for maintaining financial stability. Unlike the current system, the FPC will be given macro-prudential tools to ensure that systemic risks to financial stability are dealt with, the Treasury said.

Also proposed is a new consumer protection and markets authority (CPMA) to look out for consumers’ interests and promote confidence in financial services and markets. Tthe CPMA will therefore take on all the FSA’s responsibilities for conduct of business regulation and supervision of all firms, as well as arms-length oversight of the Financial Ombudsman Service, the Consumer Financial Education Body, and the Financial Services Compensation Scheme.

The outline of these reforms were set out earlier in the year in George Osborne’s Mansion House speech in June and subsequently in the Queen’s Speech. The government will bring forward more detailed proposals – including draft legislation – for further consultation early in 2011 and expects to secure Royal Assent for the reforms within two years.

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