Plans for a radical overhaul of the UK's financial regulatory system were dealt a blow today by the surprise departure of the boss of the City watchdog.
FSA chief executive Hector Sants had been expected to stay on at the regulator until it is disbanded next year when he would become head of a new body overseeing the UK's financial stability and a deputy governor of the Bank of England.
But Mr Sants, who was in charge during the banking crisis and spearheaded vital reforms, said he will quit at the end of June - long before the new system is fully up and running.
The move will trigger a search for a new boss of the Prudential Regulation Authority (PRA), which will take over the FSA's responsibilities for overseeing the banks.
At the same time the Financial Conduct Authority (FCA) will be formed to look after markets and consumer protection under a “twin peaks” system.
Mr Sants, who has been in the role for five years, had announced he would quit in 2010 but was convinced to stay on to oversee a reform of the regulatory system to prevent another financial crisis.
He said: “When I agreed to stay on as CEO in 2010, I committed to stay and deliver an orderly transition to the Government's new regulatory structure.
“The project is now firmly on track and with the establishment of twin peaks within the FSA I will have achieved that goal.
“Now is the right time to hand over to those who will deliver the long-term goals of the future PRA and FCA.”
The bodies that will become the PRA and the FCA are already in place and the twin peaks system will start to come into practice next month.
Sir Mervyn King, governor of the Bank of England, said: “I am sad that Hector Sants has decided to stand down. I am very grateful to him for staying on for longer than he had planned.”
After Mr Sants' departure, Andrew Bailey will take over as head of the Prudential Business Unit, which will later become the PRA.
He and Martin Wheatley, who is in charge of the Conduct Business Unit, which will later become the FCA, will report to FSA chairman Adair Turner. Mr Sants will not be replaced as chief executive.
Lord Turner said: "The major reforms made within the FSA since the financial crisis and the progress in delivering the Government's plan would not have been possible without Hector.
"He is a truly outstanding public servant of great integrity and has provided the FSA with dedicated leadership and focus through extremely turbulent times."
But Jonathan Davies, a partner at City law firm Reynolds Porter Chamberlain, said: "The timing of Hector Sants' resignation is astonishing given that his remit was to deliver an orderly transition to the Government's new twin peaks regulatory structure.
"Finishing in June before the twin peaks model is in place really is leaving the job half-done."