Best practice

Financial regulation update – May 2012

Rupert Pittman writes: financial regulation is forever evolving and we are regularly asked what the implications are for our members. Through the Thicket – the Corporate and Financial Group’s handbook to help financial communicators find their way through the maze of regulations and guidelines relating to the disclosure of financial information and the prevention of insider dealing and market abuse – remains an extremely valuable aid to those practitioners wishing to ensure best practice.

The third edition was published in November 2010 and since then there have been a number of significant developments within the market. Most significant has been the Government’s publication of the Financial Services Bill in January of this year. This is not expected to come into operation until 2013, at which point a fourth edition of Through the Thicket is planned. In the meantime however we hope that this update is of interest, and once again we thank Miranda Lane, Managing Director of FinanceTalking Ltd, for her invaluable help and guidance.

Update: May 2012

The financial crisis that began in the summer of 2007 highlighted the need for a more resilient and sustainable financial services industry to support the broader economy. In addition to being an important part of the economy in its own right, the financial services sector provides essential credit and financial services to businesses and households.

In his Mansion House speech on 15 June 2010, the Chancellor outlined the Government’s plans for reforming the regulatory system, including the creation of an independent Financial Policy Committee at the Bank of England, a new prudential regulator as a subsidiary of the Bank (the Prudential Regulatory Authority), and a new independent conduct regulator (the Financial Conduct Authority). These changes in legislation were seen to be necessary in order to fundamentally transform and strengthen financial regulation in the United Kingdom.

A draft Bill was put through pre-legislative scrutiny by the Joint Committee for the draft Financial Services Bill, from July to December 2011. On 27 January 2012 the Government published the Financial Services Bill which ‘set out a clear, coherent and comprehensive regulatory framework, replacing the uncertainty and inadequacy of the previous structure, and helping to mitigate against future risks to stability’.

The Bill gives the Bank of England responsibility for protecting and enhancing financial stability, bringing together macro and micro prudential regulation. It abolishes the Financial Services Authority (FSA) and creates a strengthened regulatory architecture consisting of the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority, also providing them each with clarity of responsibility and the necessary powers to ensure the stability of the financial sector and the protection of consumers.

The Financial Policy Committee (FPC), within the Bank of England, will be responsible for protecting the stability of the financial system as a whole and macro-prudential regulation.

The Prudential Regulation Authority (PRA) will be a subsidiary of the Bank of England, supervising deposit takers, insurers and a small number of significant investment firms.

The Financial Conduct Authority (FCA) will supervise all firms to ensure that business across financial services and markets is conducted in a way that advances the interests of all users and participants. It will be responsible for regulating conduct in retail and wholesale markets (including both exchange-operated markets and over-the-counter (OTC) dealing); supervising the trading infrastructure that supports those markets and for the prudential regulation of firms not prudentially regulated by the PRA.

In the primary markets, the government has confirmed that the FCA will perform the functions that the FSA currently performs as the UK Listing Authority. The FCA will continue to be responsible for reviewing and approving prospectuses and circulars, determining eligibility for listing and maintaining the Official List. The FCA will also police the ongoing compliance of issuers and major shareholders with the ad hoc and periodic disclosures required under the Disclosure and Transparency and Listing Rules. The FCA will authorise and monitor the performance of sponsors and, if proposed reforms are enacted, primary information providers.

The major regulatory tool in this area will remain ensuring that disclosures made by issuers, both in key documents such as prospectuses, and on a continuing basis, provide the information required to protect investors. The FCA will continue to monitor and deter insider dealing and market manipulation. This will be supported by the government’s decision to confer on the FCA the FSA’s powers to bring criminal prosecutions as well as civil action.

The Bill also legislates for a new crisis management regime, providing greater clarity and accountability to protect the taxpayer during times of crisis by providing the Chancellor with new powers over the Bank of England where public money is at risk and there is a serious threat to financial stability.

From 2 April this year the FSA will move to a ‘twin peaks’ operating model. This model will largely reflect the way the two new organisations will operate in the future.  It will mean changes to the way the FSA works in preparation for the ‘legal cutover’ to the PRA and FCA.  ‘Legal cutover’ is when the PRA and FCA will officially come into existence, and is expected to happen in early 2013. This is dependent on the Financial Services Bill being approved by Parliament.  According to the Treasury website, subject to the parliamentary timetable the Government’s aim is for the Bill to gain Royal Assent by the end of 2012, and for the new system to be operational in early 2013.

If you wish to buy copies of the third edition of Through the Thicket, the Group’s guide to financial PR (a summary of the rules and regulations for those doing PR for listed companies), please email  Cost £15 with discounts for larger quantities.


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