Responsibility for regulating banks will soon pass to the Prudential Regulation Authority, which is linked to the Bank of England
Banks will face strict supervision from the new Prudential Regulation Authority
Hector Sants, incoming boss of the PRA, told an audience of banking executives they could not be relied upon to avoid mistakes that endanger the financial system.
Sants, who is also current head of the FSA, described 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 the firms they supervise, and must take their own view formed from their own analysis about the significant issues which affect the safety and soundness of the firm," said Mr Sants.
"Furthermore, where that judgement differs from the firm's management, the regulator must act.”
The PRA will form part of the Bank of England and will take over many of the FSA’s functions. Its main mandate will be supervising all banks, credit unions, building societies and insurance companies throughout the UK. It will have a limit of 2000 firms to help ensure efficiency.
The FSA is closing down; the mandate for supervising financial institutions’ treatment of customers will go to the newly created Financial Conduct Authority
Andrew Bailey, soon to be deputy chief executive of the PRA, warned banking executives the organisation will not exist solely to prop up struggling institutions:
"Key elements... will be to ensure that financial firms do business in such a way that adverse effects on the UK financial system are avoided and to minimise damage to the system in the event that a firm does fail," he said.