The Financial Services Authority's judgement-based, twin peaks system must be embraced by the industry and lead to behavioural and cultural changes in both firms and regulators, according to Hector Sants.
The chief executive of the FSA today confirmed the new system, which splits conduct and prudential regulation, will come into effect from 2 April, ahead of a more comprehensive overhaul, which will see the establishment of the Financial Conduct Authority and the Prudential Regulation Authority.
In a speech to the British Bankers' Association, he said the "new world" of judgement-based regulation needed to be "embraced by us all" and also accepted the FSA had been unclear about its own objectives in the past.
Sants added the changes provided an opportunity to "accelerate the behavioural and cultural change needed in both regulators and firms".
"The essence of a judgement-based approach is a willingness to intervene when the regulator judges the outcomes will, in the future, be at variance to its mandate, even if the firm does not agree," he explained.
"Such proactive intervention needs to be proportionate and justified, but if we are to improve outcomes and meet the expectation of Parliament and society, such judgements will have to be made.
"A pre-requisite of encouraging such judgements is that those making them have clarity of purpose and a clear understanding of the objective against which they will be judged."
Under the new system, two independent groups will cover prudential and conduct supervision among banks, insurers and major investment firms.
However, the majority of firms, including most financial advisers, will only be covered by the conduct supervisors.
The Financial Services Bill, which will legislate on the new regulatory system, is currently making its way through Parliament.
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