Financial Services Authority in the UK: Case Study

Introduction

Financial regulation is a very important aspect in any country. A regulator ensures that banks and other financial institutions carry out financial transactions in a proper way. This encompasses protecting the interests of their customers as well as avoiding financial misconduct. In the UK, Financial Services Authority is the ultimate regulating body. It has been operating in the UK for more than 10 years.

On 16 June 2010, George Osborne, the UK’s Chancellor of the Exchequer, disclosed the sweeping reforms to the regulation of financial institutions in the UK. He had plans to take apart the current UK integrated regulator of firms and markets, Financial Services Authority (FSA), and the UK’s tripartite system of regulation. He also proposed to shift prudential supervision to a new body under the Bank of England. In addition, he proposed to create a separate agency to handle serious economic offences (Hirst, Para 1, 2010).

The UK Government proposed these changes in financial regulation as it deemed that the current regulatory body, the FSA did not deliver much. In the UK, there needs to be a well integrated financial regulation system that would offer speedy services, protect the interests of the customers and boost the economy of the Country. These propositions however faced opposing views with some opposing the view and the majority going with the propositions. This paper will try to analyse the rationality and validity of the UK Government in proposing to disband the FSA and set up new regulatory framework.

Aim of the research

The overall aim of this study is to investigate whether the Chancellor is correct in replacing the FSA with the PRA and FCA and whether the twin peaks model of regulation is correct for the UK. This study will look to answer the aim by using a literature review and methodologies combined to form a calculated opinion of how the removal of the FSA will fair in the future.

Scope of Research

The study will occur within regulation of the Financial UK industry in general and will try to focus on macro ideology rather than an on a particular firm or industry. It will try to analyse some of the views and opinions on not only the public but also practitioners within the field whether in operations or in compliance, legal and so forth.

There will be reference to other global regulators and this will be used as a comparison but the study will also take into account other factors such as culture, economic stability and growth within those regions.

Objectives

In every research, aims and objectives of the research are a fundamental aspect of the research. This is because they provide the actual targets that the research aims to achieve. Objectives are specific targets or deliverables that helps in achieving the overall aim of the project. The overall objective of this research is to determine the rationale behind abolishing the FSA in the UK while the specific objectives include:

• To determine whether the FSA has meet its statutory objectives as set out in FSMA 2000
• Gathering opinions of relevant industry people such as professionals, FSA employees and civil servants on whether the FSA have met their targets
• Establishing the opinions of various financial stakeholders on the proposed disbanding of the FSA.
• To determine whether the new proposed regulatory framework will deliver well.

The main sources of information will come from;

• Semi structured interviews
• Questionnaire to the public
• FSA 2011/ 2012 AGM report
• Original FSA mandate from FSMA 2000 ‘N2’ and FSMA S1
• White papers
• Internet sources
• FSA website
• HMT and BoE websites
• Newspapers
• Journals
• Books

Although not enacted as yet an assumption is that the PRA and FCA will replace the FSA as the main regulating bodies in the UK. No firm date has been given but indications are that it will be the end of 2012/ beginning of 2013 once the infrastructure has been made. Another assumption in the title of this research is that the Chancellor had his reasons for proposing the new regulatory regime and that it was right or wrong answer.

Structure

The research will have various segments or chapters, which will display the overall aim of the study. Chapter one, which will be the introduction, will offer a brief overview of the research. The literature review chapter will be the basis of the regulatory models. In addition, it will provide a detailed description of the mandates of the FSA, its operations, strengths and weaknesses as well as the rationale behind its formation. The literature review will also provide detailed information on functions of a financial regulator as well as different approaches to regulation.

Overall, the literature review section will provide sufficient secondary data regarding financial regulation and the FSA. The main areas of focus within the literature review will be;

• Different types of regulators; the advantages and disadvantages
• Reasons for and against regulation
• Relationships between regulators and governments

The FSA often publish important ‘Speeches’ and ‘Dear CEO letters’ on their website alongside and conjunction with news and details on the Treasury website. These sources will be useful in finding out future plans for the FSA and their thoughts on how the change is progressing. An analysis will be done on the different types of regulators i.e. single and twin peaks and whether the UK economy will benefit from the change.

In Chapter 3 the methodology will go through the tools that have been used in the primary and secondary data analysis. It will analyse the techniques that will be used and justify why this type of analysis is preferred to other collection types. The methodology will also provide information on the validity of the data used in the research.

Chapter 4 will present the findings from the data analysis and compare and contrast these with the major findings from the Literature review in the previous chapter. This chapter will also offer a summary of the expected results from the study. in analysing data and the findings of the research, the chapter will concentrate on key areas of the study. These include the effectiveness of FSA, the reasons by the government for abolishing the FSA and the effects of MiFID and Basel II. Moreover, this chapter will provide information on implications of the findings.

The final chapter will attempt to draw all the findings together and discuss whether the aims of this research have been met and whether there are any overall conclusions to be made from the research. It will also offer a summary of the findings of the research and their implications on the overall research.

Literature Review

The Financial Services Authority

All businesses that conduct financial transactions are subject to financial scrutiny and regulation all over the world. This is because without regulation, there would be a lot of financial misconduct. The past regarding financial services business has a very long history of truthful and highly regarded companies, which have always guarded the best interests of their customers. However, some companies abuse the financial system, utilizing it to attain illegal gains. These few companies have made it very important for every business to be subject to the demands of financial regulation (Lindeyer, Para 1, 2010).

In the UK, the major financial regulator is the Financial Services Authority (FSA), which functions in the same way as the IIRO in Canada.The FSA is a self-governing non-government body, which controls all kinds of financial services in the United Kingdom (Podgoetsky, Para 5, 2009). The FSA has slowly assumed accountability for controlling banking, insurance, building societies and the investment industry. FSA is now responsible for regulating over 1000 firms In UK. In addition, FSA controls the financial exchanges such as the stock exchange and clearing houses (Buckle et al, p. 345, 2004).

The distinctive way in which FSA integrates as a private company limited by assurance means that regulation is endogenous. Its core functions occur within the market and detaches from government intervention in terms of its daily activities. The FSA functions at arm’s length from the treasury, but the treasury preserve the overall responsibility for the actions of FSA and the financial markets (Singh, p. 16, 2007).

Before the establishment of FSA as a single financial regulator in the UK, several separate regulators supervised different financial markets. For instance, under the Banking Act of 1987, the Bank of England was accountable for supervising several banks (Ainley et al, p. 11, 2007). The Securities and Investments Board (SIB) was a private body financed by charges taxed on the investment industry. The Security and Investments Board did not control directly individual firms but rather devolved day-to-day supervision to a number of Self Regulatory Organizations (SROs) (Beardsley & O’Brien, p. 5, 2004).

Completion of the first stage of the present form of the United Kingdom financial services occurred in June 1998 when transfer of the banking responsibility of supervision moved to FSA from the bank of England. In June 2000, the financial services and Markets act of the UK received royal assent and on 1 December 2001, implementation and transfer of the responsibilities of other organizations to the FSA occurred (Wang, p. 307, 2008).

A number of factors promoted to the formation of FSA some of which influenced the adoption and shape of the risk based approach. The most vital factor of these was the longstanding discontent with the operation of the existing regime of financial regulation, and changes in the structure of financial markets. There was a strong and longstanding yearning by government and regulators to furnish regulators with greater powers to fight financial crimes (Black, p. 17, 2004).

In the past 25 years, financial services regulation has matured significantly. The present regulator, the Financial Services Authority has developed a complicated, comprehensive and potentially far-reaching regulatory tool kit to implement its objectives (Gray & Akseli, p. 1, 2011).

Generally, the Financial Services and Markets Act 2000, which aims to attain a fair regulation of the financial sector, led all sectors with clear aims and oppose. The Financial services regulator and the Financial Services Authority have jurisdiction and authority over all financial market participants. The Financial Services Authority has the responsibility as a regulator at the highest level to uphold balance on the financial markets (Anish, Para 16, 2011).

In the United Kingdom, the FSA acts as the financial watchdog, watching on the goings in the city. The FSA controls and oversees the financial systems and plays a major role in ensuring that training within the bank industry is up to scrape. All companies in the financial services market must be FSA accredited, ranging from banks to pension companies. After official approval, supervision and inspection of these companies occur on regular basis. The FSA is responsible of imposing taxes on the approved companies (Wang, p. 307, 2008).

The FSA is also the major agency in the UK responsible for listing of stocks on a stock exchange. The FSA also maintains the official list of securities traded on United Kingdom regulated markets as described in the Investment Services Directive (Qfinance, p. 1, 2011).

Permission granted to the Financial Services Authority as a single regulator of financial markets allows it to regulate the financial market is in proportion. The Financial Supervision Authority manages the financial markets including the investment markets, securities, insurance, banking and non-bank financial sector. All financial services, supervises investments and investment suggestion in any form, including computerized systems to monitor all the guidelines for investment in the Financial Services Authority (Anish, Para 11, 2011).

The FSA struggles to reduce any unfavourable effects on competition mounting from its activities and to facilitate competition within the United Kingdom’s financial sector. The Office of Fair Trading, HM Treasury, and the Competition Commission within the structure of the Financial Services and Markets Act supervises the FSA’s regulations and practices on competition (Qfinance, p. 1, 2011)

The first aspect of central significance is the espousal by the FSA of risk-based regulation, and the concurrent development of its risk-based operating structure for supervision. This is of basic significance and offers the context within which analysis and discussion of the two further aspects occur. These include the trend towards management processes, better regulatory invasion into the internal business as well as adjustment in regulatory acts (Gray & Hamilton, p. 2, 2006).

The FSA’s progress towards risk-related regulation in the UK and the techniques through which it developed this approach such as PBR and the ARROW structure had really been important features of the UK approach to financial regulation. This was also a source of competitive advantage over other more tightly regulated markets (Gray & Akseli, p. 78, 2011).

There is mounting anxiety among people that unsuitable executive compensation schemes at investment banking and trading firms may have taken part to the current market crisis. This is particularly in remuneration structures of firms, which had been conflicting with sound risk management, since they regularly gave incentives to practise risky strategies undermining the effect of systems intended to manage the risk. Bearing that in mind, the UK Financial Services Authority has put forth best ways for executive compensation. The authority aims to ensure that firms follow remuneration strategies, aligned with sound risk management systems and controls and with the firm’s stated risk appetite. The FSA has no craving in being involved in setting remuneration levels, since that is an affair regarding the boards (Hamilton, Para 1, 2009).

Financial Services Authority, which is a regulatory agency, has a range of establishing principles and guidance, available instruments, sanctions, mandatory disclosure requirements, creating appropriate incentives, policies, authorization, monitoring, intervention and compensation. The main choice for any financial regulator as with any representative with several objectives relates to the selection from the various policy instruments available. They are then put together to achieve broader sets of objectives (Llewellyn, p. 48, 1999).

The FSA is fully accountable for authorization and licensing of financial institutions. In some nations, the function of providing licences remains with the ministry of Finance even though the regulator prepares the recommendations. In addition, the authority has a wide range of disciplinary powers. The authority may tax fines, which may be unlimited, may postpone authorization and they may prohibit individuals from operating in regulated financial markets for indefinite periods. The Authority may also act as a prosecutor. For instance, People may bring either civil or criminal prosecutions for insider dealing crimes or in relation to money laundering. In some nations, the prosecution function and role would lie elsewhere (Davies, p. 2, 2001).

One of the major areas of concern has been concerning exclusions for pre-existing medical conditions. For instance, selling of a strategy may occur without the disclosure of pre-existing medical conditions and the consequence would be refutation of all related claims in the event of a problem. Another area that has caused people to have anxiety concerns the failure of the managers to inform customers that they may require to attain additional cover for dangerous sports activities. Some strategies only cover activities planned and arranged by the tour operator or the representative. When selling of insurance as part of a holiday package occurs, customers may justifiably focus on the excitement and anticipation of the holiday and they would not pay attention to the terms and conditions of the insurance policy. Unfortunately, many do not find out the truth until it is too late for them (Andrews, Para 4, 2008).

The Financial Service Authority has rules and regulations regarding mortgage loans throughout Great Britain and the United Kingdom. These regulations and rules include forbidding the sale of property with toxic contaminants that put borrowers at risk, making lenders accountable for giving borrowers’ affordability tests and banning too many arrears charges for borrowers who are behind on mortgage payments (Link, Para 1, 2011).

Under the control of FSMA, the Financial Services Authority (FSA) has the power to reassess and sanction banks and financial firms concerning the types of internal control and acquiescence systems they espouse. Recognized principles and standards of good governance in the financial sector are the key elements that these systems should base on. These regulatory standards place accountability on the senior management of firms to oversee effectively the different aspects of the business, to establish and sustain proper systems and controls and to prove that they have done so. The FSA will take disciplinary action if an approved person, director, senior manager or key personnel deliberately violate regulatory standards or if his or her behaviour falls below a standard that the FSA could reasonably expect him or her to observe (Alexander, p. 994, 2004).

FSA conducts several tasks including consumer education, initially assigned by the FSMA. The Act requires the FSA to practise two major aims under the objective of public awareness. This reflects a concern that consumers are not always in a position to judge the safety and soundness of particular financial institutions or to assess the risks linked with certain products. One of the aims is the mandate to offer general financial education and awareness. Secondly, it seeks enhance valuable information and advice and make it accessible to clients. The FSA not only offers generic information and advice to consumers but also encourages others to progress the availability and quality of their advice. By doing so, the FSA has developed a certain system of data and Inquiry services, which includes the statutory register of authorized firms and the Consumer Helpline (Jackson, p. 18, 2005).

The FSA regulation will have to translate to a much more effective service for the clients. The strict FSA principles and guidelines necessitate fair treatment of customers and have access to a structured complaints handling procedure. The customers will also have the advantage of the services of the Financial Ombudsman should any arguments arise which the company cannot solve directly (Andrews, Para 5, 2008).

Roles and functions of a regulator

A steady and effective financial system has a powerful impact on a nation’s economic development. In addition, it may have effects on the level of capital formation, effectiveness in the allotment of capital between competing claims and the confidence that consumers have in the honesty of the financial system. The stability and effectiveness of the system has both consequences on the supply-side and demand-side of the economy. Consecutively, a well-structured regulatory regime plays part in the efficiency and stability of the financial system. This means that a vital issue is whether the institutional framework of financial regulation and supervision has any bearing on the effectiveness of financial regulation and supervision itself and its influences on the wider economy (Llewellyn, p. 5, 2006).

In the UK, the underlying principle for an integrated national financial services regulator reflects different prime considerations. These include Financial Market Convergence, reconciling conflicting objectives, creating Clear accountability and the availability of economies of scale and scope (4). A single regulatory business is capable of attaining both scale and scope and allocates the limited resources more efficiently and more effectively. In the real sense, the costs have been flat considering salary incensement due to the constant decreasing of the financial sector. A single financial services regulator should be able to tackle cross-sectoral issues more efficiently and effectively than can a multiplicity of separate or specialist regulators (Davies, p. 5, 2001).

There is the necessity for regulation and supervision of financial system because the financial intermediaries and markets such as firms are subject to asymmetric data. The main aim of the financial regulation and supervision is to increase the effectual functioning of the financial system in order to boost the aptitude to absorb shocks and sustain financial stability. Financial instability may occur when shocks to the financial system hinders the payment system and affect the capability for normal business and trade to happen. In addition, collapse of a systematically vital financial intermediary or other shocks may cause financial instability. Any interruption in the financial system can potentially have severe economic consequences (Claus et al, p. 27, 2004).

The major responsibility of the financial regulators is to ensure that the parties accountable for supervising and controlling financial issues adhere to the code of conduct or the regulated laws. For instance, a financial regulator accountable for supervising a company that brokers stocks will ensure that the company follows the rules and regulations governing trading outlined by the Securities Exchange Commission (Wolfe, Para 2, 2011). When financial companies and institutions fail to comply with the set rules and regulations, there would be much financial malpractices.

In general, financial regulation involves authorizing prudential principles for financial firms, rules and regulations for market conduct and disclosures to fight the negative externalities of firms’ future. The financial regulator also aims in reducing the data asymmetries between financial firms and the clients, often in the challenging territory typified as two-sided markets (51). The financial regulators make rules with a view to attaining orderly conduct in markets on which trading of securities; derivatives and other instruments occur (Green et al, p. 52, 2011).

Another function of the financial regulators is prevention of abuse to the consumers. Some financial institutions may stay within the letter of the law and they may still try to mislead consumers to take part in potentially risky or costly transactions (3). In addition to preventing the abuse of consumers by cracking down on immoral practices, financial regulators also try to inform consumers of their choices by offering extra relevant information and promoting transparency among financial firms (4). Financial regulators will also try to implant practices designed to pre-empt the failure of individual companies as well as hindering industry wide collapse via the institution of management practices designed to decrease the risk (Wolfe, Para 5, 2011).

Financial regulation is also vital for banking regulation since there is existence of asymmetric information between the lenders and the borrowers. Doubts concerning the returns to projects for loans advanced can lead to instability in the financial systems, where the private markets cannot overcome. In addition, data asymmetries between the authorities and lenders create ethical hazard for institutions that are “too big to fail” given the impact they have on the larger economy. Regulation is one way of dealing with these difficulties (Davis, p. 8, 2009).

Financial regulator acts as a vital case of the public control over the economy. The accumulation of capital and allocation of financial resources constitute an important aspect in the process of economic development of a country. The strangeness of financial intermediation and of the operators who carry out this duty justifies the existence of a broader system of controls with respect to other forms of economic actions. Different theoretical motivations have gone forward to support the chance of a certain stringent regulation for banks and other financial intermediaries (Giorgio & Noia, p. 4, 2001).

Another function of the financial regulator is that it offers different information to the firms to decide how they wish ensure compliance. The rules and regulations tend to be specific whereas the principles tend to focus mainly on consequences and offer firms with less data concerning how to attain those outcomes. For instance, in the anti-fraud situation, firms establish insider trading strategies with blackout periods and monitoring mechanisms. However, the law does not authorize such strategies or practices (Anand, p. 112, 2009).

Financial regulation in banks aims at attaining stability of both the individual, institution and the system as a whole and has a number of aspects. Capital sufficiency principles influence the overall amount of risk taken through the amount of money held to cater for the unexpected losses as well as giving equity holders an inducement to observe the amount of risk taking. Limitations on liquidity and funding practices seek to make sure that institutions have adequate liquid assets on hand to meet short–term liabilities. Deposit insurance is a vital instrument to uphold the stability of banks by decreasing inducement for bank runs (Davis, p. 10, 2009).

Regulatory agencies also spot nascent risk trends in a subsector, an industry or an economy through careful supervision of information in the performance data. Having acquired this knowledge, the agencies determine the best alternatives to counter the exposures and come up with sound solutions to antidote them (4). Regulatory agencies also evaluate the effectiveness of existing strategies and mull the establishment of new processes by reading the financial statements. In addition to numbers, financial statements include non-metric information that companies generally include disclosure notes. By reading these notes, regulators can tell a lot concerning every activity taking part in a company (Codjia, Para 6, 2011).

Different approaches to regulation

Finance companies are subject to variety of regulatory authorities. Banks, both state-based and national have specific supervision as companies involved in securities trading and those listed on stock exchanges do. There is a degree of informal regulation through consumer groups, which keep track of how businesses deal with complaints from customers. Most regulation strategies came up in response to financial disgrace that painted loopholes and imperfections in the existing rules and regulations (Lister, Para 1, 2011).

Some companies base the single-regulator supervisory model on one control authority, detached from the central bank and with accountability over all markets regardless of whether in the financial, banking or insurance sector. This authority becomes concerned with all the objectives of regulation including transparency and investor protection, stability and maybe competition (10). The advantages of this approach lay in the economies of scale that it makes. Costs of administrative personnel, fixed costs, logistical expenses and compensation for the top management all decrease (Giorgio & Noia, p. 11, 2001).

One main accomplishment made by the British financial modernization was the consolidation and centralization of regulatory power into a Unified Financial Service Authority. To some extent, this process represented a continuation of efforts that begun in the early 1980s to move away from the self- regulatory model that typified British supervision for more than a decade (Jackson, p. 4, 2005).

Decentring Regulation expresses the notion that governments should not and do not have a monopoly on regulation. In addition, it means the form of regulation currently carried out by other actors without government’s involvement or even formal endorsement. Decentring also refers to the internal fragmentation of the tasks of strategy formation and implementation changes happening within the government and administration (Marianne, p. 4, 2005).

Micro-prudential Regulation creates taxpayer revelation and an accompanying ethical hazard difficulty for the bank managers. The aim of the capital regulation is to force the banks to internalize the losses on their assets offering protection to the deposit insurance fund and extenuating ethical hazard. Therefore, if this approach reduces the possibility of the deposit insurer bearing losses to a lower level, micro-prudential regulation is by definition performing its duty (Hanson et al, p. 2, 2010).

Other policies of market governance differ from the responsive regulation in what triggers the regulatory response and what it becomes. The Enforced Self-Regulation Model is a type of responsive regulation whereby arbitration occurs between the individual and the state firms to establish regulations particularized to each firm. In the Enforced Self-Regulation Model, each firm suggests its own regulatory principles in order to evade harder and less tailored standards implemented by the State (Marianne, p. 4, 2005).

In the UK, the government printed a new approach to the financial regulation, building a stronger system, in which it substantiated that FSMA implemented the reforms. According to the government, they took this decision so that the changes would be executed by greater speed whilst minimising the disturbance to firms that would arise from repealing FSMA and starting with an entirely new Bill. Additionally, in April 2011, the FSA took its first step towards the new regulatory framework by conducting an internal reorganisation in which Prudential Business Unit and a Conduct Business Unit replaced the existing Supervision and Risk business units (Hodgson et al, p. 3, 2011).

The Credit Crunch

A certain number of factors have reflected the impacts of the credit crunch’ that has strike the financial markets both in the UK and in other parts of the world, affecting both financial institutions and the consumers. The housing slump, record defaults and mounting interest rates in the sub-prime sector of the United States sparked the credit crunch. The global outcomes of this crisis have become increasingly obvious (Kenny, Para 1, 2007).

During the month of September, in the year 2007, the credit crunch resulted in the first run on a UK bank for 150 years. The infectivity has continued to spread with magnitude of the problem having grown from just $2 billions to more than $1 trillion. This caused incapability to value debt packages leading to ever tighter lending requirements across the credit markets (Walayat, Para 1, 2007).

From the time the credit crunch made its way all over the Atlantic, it has taken it toll in all financial sectors and it has made things hard for both lenders and the clients. The credit crunch has hit many lenders since it has resulted in more difficulties in getting finance on the wholesale money markets and increased costs relating to inter- bank lending. This implies that the lenders are finding it more costly and difficult to raise the money that they require to fund their lending (Lynes, Para 1, 2008).

Scrutiny of statements experienced by customers across the board increases the minimum repayments from 2.5% to 3% per month. This is due to constant rise in the credit card spending and as consumers strapped for cash keeps on accumulating debts on their credit cards. Interest rates already floating in the 15% to 20% range have similarly augmented by an average of 3%, with the interest levied on cash advances surging by 5% or more to a typical 24% average (Walayat, Para 5, 2007).

Over the current months, a mounting number of clients have found that trying to obtain any form of credit has become more challenging and costly. This is due to the action that lenders took trying to safeguard themselves as much as possible from the consequences of the credit crunch. Lenders have increased the interest rates on different financial products including loans, mortgages and credit cards. In addition, they have also tightened up on their lending principle, leaving many customers and clients out in the cold when it gets to acquiring finance. Many lenders have also taken various financial products off the market and altered their lending criteria, which has affected many consumers’ capability to acquire money (Lynes, Para 2, 2008).

Before the credit crunch, mainly in the year 2005 to 2007, the United Kingdom mortgage and property markets were ‘deafening’. During this period, there were literally thousands of mortgages accessible to the first time buyers with hundreds of deals on proffer for people without any deposit (2). As these signs of the credit crunch moved stealthily up and different financial institutions started to disintegrate, the UK leaders started withdrawing deals from the markets (Best, Para 5, 2010).

The credit crunch has hit hard the mortgage sector since the days of easy mortgage credit are gone where the acme of the lending boom borrowers could certify at more that 10 times the earnings. Nowadays, the borrowers face a much more draconian lending rule, which strikes all borrowers across the board and not just the subprime. Normally mortgage interest rates would start to reduce the move well ahead of the first cut in the UK Base interest rate. The money markets have seen the rate at which banks lend to each other, mount from 5.4% in 2006 to 6.25% in 2007 and hence the rise in mortgage rates (Walayat, Para 2, 2007).

Lenders perceive the first time buyers as higher risks as they have not owned a property or bought a mortgage before. As a result, the lending criteria tightened, making it more difficult for clients’ approval for a mortgage. Lenders began to withdraw 100% mortgages until mortgages became history, unlikely to return to the UK market any time (Best, Para 6, 2010). This highly affected the middle aged people in the UK as they are the ones who apply for mortgages. This is also the group of people that is the prime mover of the UK economy. As a result, the credit crunch highly affected the economy of the UK.

Research Methodology and Methods

Introduction

The major aim of this chapter is to present the methodology used in this research. It will analyze the different methods utilized in the collection of data and data analysis. In addition, the chapter will offer the justification of the methodology used in this research. Moreover, the chapter will provide an analysis of the validity of the methods applied in this research as well as their limitations. The FSA forms the main company used for the generation of primary research. In addition, as a means of generating primary data, the research will engage the public by administering some questionnaires.

The questionnaires will provide response from the public concerning their perception of the FSA and its proposed abolishment. Furthermore, the research will administer Semi- structured interviews with persons in the financial sector including retail banks, investment banks, insurance companies and the FSA regarding their opinions on various issues relating to the FSA. Extensive secondary research will generate secondary data that will highly support the primary data. The secondary research will derive extensive literature from books, journals and websites.

Theoretical Framework

Specifically, this research will study the validity of the proposal to abolish the FSA in the UK. The major targets will include getting information from the public concerning their views on the issue. The public will offer information on how they view the FSA and offer a response concerning its proposed abolishment. The research will also aim to get response from the public concerning the awareness of the FSA and the general regulatory framework in the UK. In addition, the methodology applied in this research will aim at generating quality information that will offer a platform for a systematic report.

Research Design

The major aim of the research methodology is to generate quality and extensive information for analysis and final reporting. In this regard, the research design will utilize both qualitative and quantitative data. Much of the quantitative data will derive from secondary research with specific financial reports and analysis from the FSA website. In addition, some of the secondary data that will constitute part of the quantitative data will derive from the treasury and various books and journals offering specific statements of function of the FSA. The research will also derive part of the quantitative data by administering questionnaires to the public. Much of the qualitative data will derive from administration of the semi-structured interviews to persons in the financial sector while some part of this data will derive from the questionnaires administered to the public.

The design will thus utilize a multiple data collection procedure which is very essential in the research. The use of such a procedure helps in offsetting prejudice and overestimation or underestimation of the research findings. This procedure provides a broad platform for analysis of the data and a greater validity of the information. Eventually, this will ensure that the research produces better and reliable outcomes, which would be very useful. The approach of administering the interviews and questionnaires entailed carefully selected samples by use of systematic sampling procedure. Systematic sampling produced reliable samples, which were representative of the whole population. Systematic sampling was essential since financial regulation affects almost the whole population in the UK.

Data Collection

The research utilized both primary and secondary data collection techniques. The major data collection tools for primary data were the semi-structured interviews as well as questionnaires. In addition, an extensive range of secondary data derived from various sources supported the primary data. This is very essential since primary data alone can be sometimes biased and not offer the required insights. The use of secondary data is very essential as it supports the results from primary data. The gathering of both primary and secondary data was in relation to the initial research objectives and the research questions.

Secondary Data

In any given research, it is paramount to engage a wide range of information before deriving the primary data. In this regard, gathering extensive secondary data is essential for reinforcing the primary data. In addition, the secondary data is essential as it acts as a baseline in comparing the primary results. It helps in providing a benchmark through which the research assesses the validity of primary data. The research derived secondary data from extensive literature concerning various issues. These included the roles of the FSA, the credit crunch and its effects, the rationale for financial regulation as well as the various forms of financial regulation. The various sources of secondary data utilized by the research included academic books, journals and periodicals, annual reports from professional bodies, lecture notes, credible newspaper articles and internet websites.

Primary Data

The research utilized both qualitative and quantitative primary data collection procedures. The main objective of gathering primary data was to get much response from the public and financial institutions concerning the proposed abolishment of the FSA. In addition, primary data aimed at establishing how the public and financial institutions perceive the FSA in relation to its roles and effectiveness. Another objective of primary data was to establish whether the public is aware of the existence of the FSA. The research administered semi-structured interviews to various financial institutions and sent questionnaires to a selected sample of the public.

The questionnaires administered in the research majored in explanatory questions where they required the respondents to provide their insights concerning the research questions. The questions revolved around the knowledge of the existence of FSA and its perceived mandate. In addition, the questionnaires aimed at getting information from the public concerning their perception of the achievements of the FSA as well as its mandate in the credit crisis. The questionnaires also required the respondents to give their outlook concerning the improvements necessary for better functioning of the FSA. Since the questionnaires derived information from the public, they did not engage the respondents with issues regarding general financial regulation in the UK.

The research also engaged various financial institutions with semi-structured interviews. The interviews sought to establish the interest of different individuals and institutions in the financial sector. In addition, the interviews derived information concerning the original objectives of the FSA. Since the interviews dealt with financial institutions, they also engaged the respondents on their views concerning the functions of financial regulators in the UK. This information was very essential especially in generating the rationale of disbanding the FSA. In addition to this, the semi-structured interviews obtained information from financial institutions concerning the issue of disbanding the FSA. The respondents were able to provide their views in regard to whether the Chancellor was right in proposing to disband the FSA. Moreover, the respondents were able to offer their perceptions concerning how the government would manage the proposed change.

Validity

There are several advantages accrued from the use of questionnaires and semi-structured interviews. In the case of questionnaires, they are very effective in gathering data from an extensive area by engaging a large number of respondents. In addition, the questionnaires administered in this research offered precise information from a wide perspective. This is because different people offered different perspectives and opinions concerning the matter at hand. Moreover, responses from the questionnaires were easily quantifiable to draw common responses and group them together.

The semi-structured interviews administered in this research offered a wide range of opinions from the respondents. In addition, the interviews are essential in generating diverse opinions from the same person. This is because the interviewer can ask the respondent to elaborate where he did not understand. By so doing, the respondent offers complete and quality information to the interviewer. The secondary data generated by for this research was extensive to offer a wide range of information. This ensured that the data does not imply any bias as it was diverse and extensive. This is because the research utilized various sources for secondary research including books, journals, online articles and websites.

Implementation of Research

The implementation of research is a very crucial aspect of the research project. It entails the entire process of ensuring the achievements of the initial goals and objectives of the research. In this research, implementation commenced during the collection of extensive secondary data. This secondary data facilitated in the generation of primary data. This means that secondary data was essential in determining the extent and type of expected primary data. In addition, the analysis of secondary data facilitated the generation of interviews used for primary data collection. This is essential because before gathering any primary data for research, there need to be adequate back-up from an extensive literature of secondary data. The primary data derived from the interviews and questionnaires formed the major elements in analysis of data and presentation of findings.

Implementation of Secondary Research

There is extensive literature providing information on the formation of the Financial Services Authority. In addition, the literature offers information concerning the major roles of the FSA. In particular, there are various books and online articles that have valuable information concerning the history, formation and functions of the FSA in the UK. These sources have diverse information, with some providing detailed description of the roles of FSA. This literature also provides information concerning the reasons that prompted the formation of the FSA.

Several secondary sources also provide extensive information concerning the functions of a financial regulator. These sources offer valuable information regarding the rationale for having financial regulation systems in any country. Majority of the sources indicate that without ample financial regulation, the economic development of a country might face serious consequences. This therefore means that appropriate financial regulation measures are essential for effective and steady economic development. In the UK, the sources indicate that financial regulation is essential in creating Clear accountability and the availability of economies of scale and scope.

Secondary research also offered extensive information regarding the development and effects of the Credit Crunch in the UK and other parts of the world. Specifically, these sources elaborated on the major effects of the credit crunch in the UK. Providing this information on the credit crunch was very essential in determining the effectiveness of the FSA in dealing with the crisis. In addition, much of these sources provided information regarding effects of credit crunch on lenders and mortgages in the UK.

The generation of secondary research also offered a platform for obtaining valuable information regarding the various approaches of regulation used by financial regulation systems. Much of these sources provided information concerning the differences of single regulator and multiple or double financial regulators. In addition, the sources offered information concerning decentring regulation as well as Micro-prudential Regulation. Moreover, these sources offered the rationale, advantages and disadvantages of adopting these regulatory approaches.

It is evident that the implementation of secondary research was very essential and effective in the research project. Secondary research offered valuable information required for answering the major research questions and achieving the goals and objectives of the research. In addition, secondary research was essential in facilitating the gathering and collection of primary data. It acted as a guide to the form and extent of primary data collected.

Implementation of Primary Research

The implementation of primary research started during administration of semi-structured interviews with financial institutions and offering questionnaires to the public. The semi-structured interviews offered extensive information regarding the perceptions of financial institutions towards the FSA and entire regulatory framework in the UK. The respondents also provided information regarding the future of financial regulation in the UK. The questionnaires provided extensive information concerning the perceptions of the public towards the roles and existence of the FSA. The responses related directly to the original objectives of the research and the research questions. The analysis of these responses offered a good platform of answering the major research questions.

Findings and Analysis of results

Introduction

The main aim of data analysis was to generate conclusions from the data collected through assessing, tabulating, testing and categorizing the raw data. The analysis of the data utilised both primary and secondary data collected to come up with considerable conclusions. The analysis of the data also aimed at meeting the main objectives of the research by proving empirically based findings. Data analysis offered various findings concerning the effectiveness of FSA, the reasons for disbanding of the FSA, the effects of the new regulatory measures as well as the effects of MiFID and Basel II. The research utilized various analytic techniques to analyze the data including pattern matching and explanation building.

Summary of the Expected results

With regard to the establishment of a new regulatory framework, there are various expected results from this move. These results would be both positive and negative results depending on the perception of the public. The new regulatory framework includes establishment of a macro-prudential regulator and a Financial Policy Committee (FPC) within the Bank of England (BoE). The regulatory framework also includes the Prudential Regulation Authority (PRA), which will be set up as a subsidiary of the BoE. In addition, rules and regulations will include creating the Financial Conduct Authority (FCA), previously named the Consumer Protection and Markets Authority (Cook, Para 4, 2011).

The Financial Policy Committee (FPC) will be accountable for macro-prudential supervision, with key responsibility of maintaining financial stability. The Prudential Regulation Authority (PRA), which is a subsidiary of Bank of England, will be accountable and in charge of prudential regulation of all deposit-taking institutions, insurers and banks. The Financial Conduct Authority (FCA) will control business conducted in retail and wholesale markets with a major objective of offering protection and enhancing confidence in the UK financial system (Lloyd.com, Para 3, 2011).

The new necessities will include the incensement of the minimum capital ratio from 2% to 4.5%, as well as the counter-cyclical buffer zone of 2.5%, adding to 7%. During a liquidity crisis with the 2.5% buffer zone, banks can utilize this extra reserve of capital. However, the new rules penalize banks for utilizing the buffer reserve, in order to create a deterrent to spend the additional capital unnecessarily. The new rules and regulations states that when a bank uses the buffer, they will face limitations on dividend payments, which will restrain their capability of attracting shareholders (Kotelnikova, Para 3, 2011).

A comprehensive change such as this should aid in restoring consumers confidence and it will assure consumers that what they are buying will deliver the benefits that it promised (Thorpe, Para 8, 2010). The research therefore expects that the secondary data will derive the importance of disbanding the FSA and setting up a new regulatory framework. This means that there are justifiable reasons for the proposal of disbanding the FSA.

However, there are some costs involved in pursuing legal aims and objectives of regulation especially when using of a single regulator. If pursued too far, the costs may go beyond the benefits. Objectives can make regulation more efficient in but at the expense of higher costs. The final analysis comprises a question of balancing the profits of a higher degree of accomplishment effectiveness, and the costs that may go with this pursuit efficiency (Llewellyn, p. 52, 1999). This clearly indicates that from the financial statements and reports derived from secondary data, there are expected increases in costs due to FSA regulatory techniques.

In addition to the above expected results majorly derived from the secondary data, the questionnaires and semi-structured interviews will also derive some expected results. For instance, the research expects that majority of respondents especially financial institutions will be of the support of disbanding the FSA. There are also expectations that the FSA did not achieve much in controlling the credit crisis and that there is need for setting up a new regulatory framework in the UK. Thee results will also probably indicate that many people in the UK did not embrace the functions of the FSA as a single regulator. Rather, there would be an overwhelming support of a new regulatory framework.

Effectiveness of FSA

Primary data collected through semi-structured interviews revealed that nearly half of business people in the financial sector approximately 47.8 percent perceive that the FSA approach on financial offenses is not efficient. This group feels that the FSA has not adequately addressed the issues relating to financial offences. Another smaller percentage of the public approximately 18 percent feels that the approach of FSA is effective and efficient.

Majority of the members of the public about 67 percent of the sample feel that the FSA have not done a good job in financial regulation of the UK. Most of them indicated that the FSA does not have the capability of controlling the entire financial regulation needs of the UK. They compared the single regulator framework by the FSA with other double regulatory frameworks practised in some developed countries. However, a great deal of secondary data indicated that the FSA is very effective in achieving the agenda of the government in financial regulation.

The FSA has played a key role in placing financial potentials on the agenda of government and the financial services industry in offering leadership and coordination. The FSA also works successfully with a wide rage of partners to distribute its projects. The FSA regards its roles and responsibilities in building financial capability as long-term and it has set aside five year expenditure+ plans in order to offer certainty for industry and delivery partners (Great Britain, p. 7, 2007).

Another host of secondary data indicates that the FSA has put in place its own systems to report on matters that hinder its accomplishments, with its yearly domestic and international regulatory outlooks. For instance, in 2002, during the slowdown in the economy and equity markets, the FSA focused on the efficiency of risk management systems in firms to assess how robust they were in such conditions, and called in some cases for progress (Singh, p. 19, 2007). These findings correspond with a smaller number of responses from the interviewees’ respondents approximately 14 percent. These respondents indicated that the FSA was effective it trying to solve problems brought about by the credit crisis.

Government reasons for abolishment of FSA

During the primary data collection, most of the respondents especially those associated with financial institutions indicated that the Government had genuine reasons for disbanding the FSA. 38 percent of the respondents asserted that the FSA did not do much in mitigating the effects of the credit crisis. They therefore indicated that they had actually anticipated its disbanding.

Many people especially those in the financial sector embraced this move by the government deeming it as effective. The major reason as to why these institutions embraced the move was mitigation of the credit crisis. Approximately 56 percent of the respondents indicated that the FSA did not carry out its functions with the desired speed. There was sluggishness on the part of implementation and this prompted its disbanding.

Osborne remains convinced that the tripartite system of Gordon Brown of regulation set up in 1997, with control rip between the banks, the treasury and the FSA was a major factor in the challenges faced by the UK during the build-up to the financial crash (Treanor & Elliott, Para 5). Considerable number of respondents during the primary data collection felt that there was need for change in the financial regulation of the UK. Majorly, they attributed the financial problems experienced in the country as caused by the current financial regulation system.

According to the outlook of the new Government, the tripartite system of regulation “failed spectacularly” in its mission to ensure financial stability and to identify the swift and unsustainable increase in debt at the centre of the banking crisis (Moore, et al, Para 2, 2010). In this regard more than half of the respondents about 69.3 percent indicated that they did not trust the current financial regulation structure. 38 percent of these stated that the current financial regulation framework gave way to numerous issues of financial misconduct. Moreover, the rest, about 62 percent reported that the FSA did not protect the interests of customers. Only 30.7 percent of the respondents indicated faith with the FSA.

The above findings imply that the FSA have not actually delivered its best according to the UK population. Moreover, most of the respondents cited lack of customer protection as a justification for disbanding of the FSA. Considering that only 30.7 percent of respondents cited faith with the FSA, it is evident that majority of the UK population support its disbanding.

The chancellor and other Treasury officials have not fulfilled their duties to elucidate their attitude to the FSA although the Queen’s speech promised to pass “control of macro-prudential supervision” and “oversight of micro-prudential supervision” to the Bank, but only few in the City understood what this meant (Treanor & Elliott, Para 7).

In this view, approximately 47 percent of respondents between ages 18 and 25 did not have an idea of the financial regulation system in they UK. This group asserted that even though they have ever heard of FSA, they did not understand its mandates or functions. This means that there is a lapse in creating awareness on the functions of FSA to the public.

The European regulation will have dominance over the financial regulation and the new UK authorities. It is also valuable to consider the objectives of the new European Supervisory Authorities. The UK bodies will be subject to their rules and technical guidance in a number of respects, thus these objectives will in effect ‘flow through’ to them (Black & Hopper, p. 4).

Most people in financial institutions approximately 52 percent of the respondents felt that the future of UK financial regulation rests within the EU regulation system. They asserted that the UK regulation system should align with the objectives of EU regulation. While 13 percent of these respondents did not have a clear anticipation of the future of UK regulation, the rest, 35 percent felt that the future of UK financial regulation rests on the functions of the FSA. This group mostly cited that the FSA, if given another chance can perform better and transform financial regulation in the UK.

One of the key duties of the City regulators is to deal with these senior crimes along with other government bodies such as the Serious Fraud Office and the Office of Fair Trading (Treanor & Elliott, Para 9). This shows that the government did not have faith in the FSA as a single regulator in the UK.

Considerable amount of secondary data indicated prompted support in the move of the government to disband the FSA. For instance, Kotelnikova (Para 4, 2011) asserts that the main aim of this move by the government is to make financial institutions to be more resistant to financial shocks by increasing the amount of quality capital held against foreseen loses and risks. The key indicator of the financial strength of an institution is the ratio of the total issued equity capital against risk-weighted assets (RWA). For instance, if a bank provides a deposit of £100, while risk weight is 80%, its RWA becomes £80. If the total equity issued at a particular time is £30, then the capital ratio will sum up to £30/£80 or 37.5%. The new regulations include the revision of risk weighting and the assets that qualify for the ratio.

The new government takes into considerations that reforms are essential to promote responsible and sustainable banking, give greater powers to regulators to support competition in the banking sector, protect taxpayers from financial malpractice, help the public manage their own debts and limit unsustainable lending practices (Shearman.com, p. 1, 2011). Primary research also supported this assertion with over 54 percent of respondents between ages 26 and 35 indicating that the current financial regulation system is not sustainable. They also asserted that the FSA does not protect taxpayers adequately from financial malpractices.

Effect of MiFID and Basel II

The two forces of liberalization and technology have clearly described the development of financial markets in the United Kingdom. In the year 1986, during the Big Bang in the United Kingdom equity market, progressive liberalization and deregulation and the quickening pace of technological changes have become focal to the development of UK securities trading (Little, p. 5, 2007).

The Markets in Financial Instruments Directive (MiFID) took the regulatory environment effectively as it had already applied in London. It also extended it across the European Union with most of its key provisions already applied. The provisions included system architecture openness, best execution, a conduct of business, which is a comprehensive system of internal organizational requirements for investment firms, other operational requirements for clients, and competition in trade execution and transparency in pre-trade information (Little, p. 11, 2007).

During collection of primary data, most respondents in the public domain, approximately 51 percent did not have an idea of what MiFID means. Others, about 23 percent indicated that they are aware of the term but they do not know how it affects the FSA. The remaining 26 percent knew perfectly of the effects of MiFID on financial regulation in the UK. This group cited that the MiFID helps in accelerating and speeding up financial activities that are essential in the UK. They also cited that the MiFID is a perfect tool of ensuring equitable and transparent financial regulation in the UK.

Secondary data also supported these views extensively. For instance, Casey & Lannoo (p. 1, 2006) indicates that the MiFID accelerates some vital ongoing changes in European financial markets mainly driven by technological improvements and enhanced competition in the provision of financial services mounting from globalisation. Few examples of ongoing structural shifts in financial markets precipitated by MiFID include the facilitation of straight-through processing, algorithms and the ‘exchangization’ of OTC markets, greater recourse to electronic trading and the ongoing disintermediation of brokering through direct market access.

Little (p. 11, 2007) adds that the MiFID has a duty of regulating investments firms who as regular business and on professional basis perform investment services and activities. Such investment firms are subject to MiFID’s regime of organisational and operating requirements and pass porting and other rights. Most of respondents in support of the activities of MiFID argued that it is an essential tool for the future of UK financial regulation.

MiFID has lead to increased harmonization for the investment services and securities transactions in the European Union. MiFID achieved this by broadening the reach of services and products covered as compared to the Investment Services Directive and by imposing more detailed performance rules on exchanges and investment firms. Through this, MiFID has led to more integrated European capital markets, but will also have major impacts on market structure and development (Casey & Lannoo, p. 2, 2006).

The main objective of the New Basel Capital Accord (or Basel II) approved in June 2004 by the Basel Committee on Banking Supervision, was to further strengthen the soundness and stability of the international banking system via encouragement in banks to progress their risk management practices (Jones, p. 4, 2007). The positive effects of Basel II would be realized after disbanding the FSA and allow other regulatory approaches to take effect. 23 percent of the respondents claimed that the effects of Basel II would form a core aspect of the future of UK financial regulation.

Most people argue that banks require higher capital allocation for putting capital to a higher credit risk. The government should make efforts to limit the latent adverse influence of the Basel II implementation on small businesses and the peer sectors in the whole society. The best and available means of controlling the finance sector is risk management, which can help banks improve their earnings by offering protection against losses and attracting more money at relatively lower costs (Hai et al, p. 9, 2007). To fulfil the accord of Basel II is a great problem to the banks in the same way it is difficult for the regulatory body to supervise, control and evaluate their compliance properly Lindblom et al, p. 2, 2008).

For the Basel II to succeed, they require a strong and more developed financial system. According to the outlooks of the International Monetary Fund, premature adoption of Basel II in nations with limited capability could unsuitably deflect resources from the more urgent priorities, and eventually widening instead of strengthening supervision. Premature adoption of Basel II by the world economies brings about many challenges (Hai et al, p. 7, 2007).

In Basel II, the willpower of regulatory capital of a bank is more accurate and calibrated with regard to risk evaluation. The emphasis is not only on put on the bank‘s exposure to different types of financial risk, but also on its operational risk exposure. For banks, this innovation means a key change, which is adding more pressure on their development and design of internal risk data models and systems (Lindblom et al, p. 5, 2008).

Implications of the findings

From the findings it is evident that the majority of the population of the UK do not have faith with the FSA. As a single financial regulator in the UK, the FSA has failed to adequately address major financial problems. In particular, the population feels that the FSA did very little to curb the negative effects brought about by the credit crisis. Financial institutions and many business persons had relied on the FSA to help mitigate these effects. In addition, many people feel that the FSA does not speed up its transactions, thereby causing many inconveniences in financial regulation.

However, considerable amount of secondary data reveals that the FSA has been effective in some Key areas of the UK economy. For instance, some sources indicate that the FSA has successfully build financial capability to small business people, who once felt ruled out of the financial regulation system. Despite this, some investors feel that the FSA did not fully protect their rights and their interests. They therefore assert that disbanding of the FSA would be a positive move by the government.

From the findings, it is also evident that the government had justifiable reasons for deciding to disband the FSA. The government feel that the FSA was the major cause of various financial challenges in the UK. In addition, the government felt that the FSA failed to offer considerable financial stability in the country. In this regard, it is clear that the FSA has failed to adequately address major financial problems in the UK. In addition, the FSA does not follow the European Union financial regulation standards. This means that the financial regulation system of the UK does not respond to international standards.

The government felt that by disbanding the FSA and setting up a new regulatory in the UK would mean effective regulation. Moreover, the new regulatory framework would be at per with the European Union financial regulation standards. This would ensure protection of the UK interests in the international financial transactions. The government also felt that it was necessary to generate a new financial regulation system that would render financial institutions more resistant to financial shocks. This is a task that the FSA had failed to accomplish. The findings indicate that financial institutions have been experiencing major financial shocks under the control of FSA.

The outcomes of the research also derived the necessity of MiFID and Basel II in financial regulation of the UK. The MiFID successfully accelerates financial activities and transactions. In this regard, the government felt that disbanding the FSA was a crucial move to give way for the positive effects of the MiFID. Moreover, the MiFID is essential in regulating investments, a task that the FSA has not adequately addressed. The MiFID also leads to increased harmonization for investment services. The major positive effect of Basel II is strengthening financial stability.

The findings present the assertion that the government was very right in deciding to disband the FSA and set up new regulatory approaches in the UK. The FSA has seemingly failed to adequately control financial regulation in the UK especially during the credit crisis. Although some data indicate that the FSA is very effective and essential in the UK, much primary data revealed that the disbanding of the FSA would be a very positive move by the government. The findings also reveal that the future of financial regulation in the UK rests in disbanding the FSA and setting up other regulatory measures.

Conclusion and limitations

Financial regulation is of paramount importance to any Country. Different countries have different forms and approaches of financial regulation. Proper financial regulation in any given country helps to boost the economy of the country. It offers a platform for economic development whereas poor financial regulation results to poor economic growth of a country. This therefore means that financial regulation is a prime mover of the economy. In addition to aiding in economic development, proper financial regulation helps financial institutions to absorb various financial shocks.

Financial regulation is also essential in generating accountability on the side of financial institutions. In most cases, financial institutions exploit customers by passing financial shocks and malpractices to them. Financial regulation ensures considerable check on financial institutions. By so doing, financial regulation protects customers from abuse and exploitation by financial institutions. It also serves as a platform for offering financial advice and information to firms and customers. This helps in obtaining stability within the financial system of any country. In this regard, there are different approaches to financial regulation including single-regulator, decentring regulation and macro-prudential regulation.

In the UK the FSA is the main body that deals with financial regulation. The FSA controls investment industry and stock exchanges in the UK. It operates as a single regulator with various powers as well as set rules and regulations. The FSA has also various guiding principles that help in effective control of financial regulation. The main agenda behind its formation in 1998 was to fight financial crime. In this regard, the FSA also aims at reducing unfavourable competition in the financial sector. The FSA also regulates risks and is responsible for licensing of financial institutions in the UK.

After the formation of the FSA, the credit crisis hit UK, which prompted the FSA to propose adequate measures for mitigating the crisis. The credit crisis highly affected the financial system in the UK. Most particularly, the credit crisis affected the mortgage system in the UK. Eventually, the crisis led to serious financial problems as well as affecting the UK economy. Although the FSA was very effective in controlling financial regulation in the UK, it did not effectively handle the Credit crisis.

Considerable amount of secondary data revealed that the FSA was a cause in the many financial problems experienced in the UK. This prompted the UK Chancellor George Osborne to propose the disbanding of the FSA and set up a new financial regulatory framework. This new financial framework would include various regulatory bodies such as financial policy committee, prudential regulation Authority and the financial conduct Authority. The government decided to abolish the FSA due to various reasons.

Majorly, the government felt that the FSA did not speed its transactions and therefore left many issues unattended. This means that as a single regulator, the FSA was not capable of controlling the entire financial system in the UK. In addition, the government felt that the UK financial regulation needs to be at per with the standards of European Union financial regulation. Another reason which prompted the Government to decide to disband the FSA related to the credit crisis. The government decided to abolish the FSA and set up new regulatory bodies that can contain the credit crisis.

Findings from the primary data indicated that even the UK population embraced the move by the government of disbanding the FSA. Majority of the respondents indicated that the FSA did not do much in containing the problems caused by the credit crisis. In addition, some respondents felt that the future of UK financial regulation rested in disbanding the FSA and setting up new regulation bodies. An overwhelming amount of secondary data supported these results. Various sources claimed that the credit crisis was too much for a single regulator.

The findings of this research prompts that the UK Chancellor George Osborne was right in deciding to disband the FSA and form new regulatory bodies. The dream of any country is to see its economy grow without any constrains. Poor financial regulation is one aspect that can lead to poor economic growth. As a result, there is need for financial regulation to address issues of concern particularly those that threaten the economy of a country. This therefore means that the UK government was right in taking this move. It was necessary for the government to protect the future of financial regulation and the interests of customers. Despite several oppositions towards the move, it is evident that the government is right in carrying out this move.

Following the effects of the economic crisis over the last few years, many people have been loosing their trust in financial products. In this regard, not many people are willing to invest in the financial sector as they fear the effects of the financial and credit crisis. In the UK, the formation of consumer protection authority and prudential regulation Authority forms a strong financial regulation framework that protects the consumer against exploitation. This move makes the UK to be one of the major countries that are ready to challenge problems resulting from financial and credit crisis.

Relying on this double form of financial regulation rather than a single regulator is very crucial in any economy. This is because as one agency deals with the overall financial regulation matters, the other deals with customer protection, which is essential in economic development of a nation. By establishing the prudential regulation authority, the UK government will ensure sound financial regulation.

Financial marketers have been working considerably hard to integrate their customers in to their system by bringing them closer to them. As the UK government has proposed valuable changes in the financial regulation, financial marketers need to take up this advantage and establish a good relationship with their customers. For the financial marketers to restore the confidence of customers, they need to be accountable and extremely transparent. This is because many customers no longer trust financial institutions.

By abolishing the FSA and setting up a new financial regulatory structure in the UK, the government will ensure protection of the interests of customers. In addition, most financial customers will gain much confidence financial products and will trust financial marketers. This move by the Government will ensure sound financial regulation in the UK for many years.

There were various limitations incurred by this research mainly related to the methodology and data collection. These limitations included low response return rates, biased response from some respondents, biasness of the selected sample misinterpretation of the results and false or inaccurate responses. In addition, the secondary data used in this research was also subject to bias either from the researcher or the writer in trying to prove a particular argument. To offset the biases related to primary research, the research created questionnaires and interview that are not misleading or biased to one type of view. For the secondary data, the research singled out those resources that were accurate and had overwhelming evidence.

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