A safer, more stable banking system for the UK?

Hector Sants, the head of the Financial Services Authority, has warned an audience of senior banking executives that they can expect to be much more strictly supervised by the new Prudential Regulation Authority (PRA) than they have been in the past.

The executives were called to hear the latest thinking of the FSA and the Bank of England about how the new regulatory regime will work. Hants describes the new approach as “close intensive engagement”.

“Central to this supervisory model is the presumption that regulators cannot rely on the judgement of the management of firms they supervise, and must take their own view formed from their own analysis,” said Mr Sants.

“Furthermore”, he added, “where that judgement differs from that of the firm's management, the regulator must act”.

The implications of the shake-up in banking regulation for ordinary Britons, many of whom are in need of debt assistance, are uncertain at this point. But if this reorganization results in a safer, more stable banking system, then the overall economy will improve and everyone will benefit.

The decision to carve up the FSA was made by the coalition government last year after the financial crisis in 2007 and 2008 exposed problems with the regulatory regime. The PRA, which will be a division of the Bank of England, is being created next year to replace and improve on some of the functions of the Financial Services Authority, which is being closed down.

The PRA will be responsible for supervising all banks, building societies and credit unions, plus insurance firms, amounting to more than 2,000 firms companies. Responsibility for supervising the way financial firms treat their customers will go to a separate Financial Conduct Authority (FCA).

By James Murray