The focus for much of 2010 was on improving the regulatory framework that many regarded, in the wake of the financial crisis, as broken. This has led to domestic initiatives from the FSA and the UK Coalition government, European initiatives from the European Council, Commission and Parliament and global initiatives from a number of regulatory bodies including the Basel Commission on Banking Supervision (BCBS). One of the key themes for 2011 will be understanding how all these initiatives bounced off each other in their formative year in 2010, and how they will fit together as a more mature picture emerges in 2011.

On a global level the BCBS announced, in September 2010, the so called Basel III reforms which are intended to strengthen capital and liquidity requirements substantially. The European Parliament sounded a cautionary note in October by welcoming the work of the BCBS, but calling for a more considered approach to be taken when enshrining the reforms into European law, especially with regard to their cumulative effect. In November, the European Commissioner for the Internal Market and Services, Michel Barnier, continued Europe's tentative welcome to these proposals by making the point that he felt it critical that these requirements were applied consistently across the globe.

The march of Basel III continued apace in December with the BCBS meeting and agreeing the detail of the Basel III rules at the start of the month, and then, with eye-watering speed, publishing the final version of the Basel III rules text at the end of the month. In Europe, Basel III will largely be implemented through amendments to the Capital Requirements Directive (CRD IV), and a legislative proposal is expected sometime in Q1 2011. However, how Basel III will be implemented throughout the rest of the world is a fascinating question, to which no one seems to have a clear answer.

2010 saw Europe engage in a massive programme of reform of how it regulated the financial services industry; this took in not only a reform of the rules it applied to financial services institutions, but also a reform of the powers and functions of the supervisory authorities. The regulatory legislation which the European apparatus tackled in 2010 included the Alternative Investment Fund Managers Directive (AIFMD), the Markets in Financial Instruments Directive (to be recast as MiFID II via the MiFID review), and a proposed European Market Infrastructure Regulation (EMIR).

Throughout 2010 various compromise proposals for the reformed text of the AIFMD were published, with agreement on the framework Directive finally being reached in October. The areas of agreement which proved most difficult to reach were those relating to passports for non EU alternative investment funds (AIFs) and AIF managers, asset stripping by private equity firms and depositary liability. However, with agreement on the framework Directive reached, in December the Commission requested the advice of the Committee of European Securities Regulators (CESR) on the content of the AIFMD's implementing measures. The deadline for this advice is 16 September 2011. In response, CESR issued a call for evidence to interested stakeholders on 3 December and it is expected that further papers will follow before it finalises its advice.

Various compromise proposals for the text of the EMIR were also published in 2010 and the start of 2011, and at present this is all we have. However, the European Parliament has announced that it hopes to have reached political agreement in relation to the final text of EMIR with the Council and the Commission by 17 May 2011.

The MiFID review was another European legislative behemoth that made its presence felt throughout 2010. CESR published its first and second sets of technical advice to the Commission in July and October. Also in October CESR published a feedback statement, so that in these three publications CESR had covered, amongst other things, the standardisation and organised platform trading of over-the-counter derivatives, post trade transparency standards and client categorisation. In Decembe,r the Commission finally published its long awaited MiFID review consultation paper. The consultation paper, despite its length and range, has left interested observers still interested as to how the recasting of MiFID will eventually play out. By leaving the drafting of the technical detail of many of its most penetrative reforms to CESR's successor, the European Securities and Markets Authority (ESMA), it is still unclear as to whether we can expect a MiFID II in the same spirit as MiFID I, or a MiFID II predicated on the conclusion that MiFID I failed, and that we thus need a different piece of legislation altogether.

An overarching theme to all the legislative reform carried out in Europe in 2010 was the review and reform of the European supervisory authorities. Most of the analysis and debate on this topic had been carried out in 2009 and before, leaving only the final version of the legislative proposals replacing the original Lamfalussy Level 3 Committees with new European supervisory authorities (ESMA, the European Banking Authority and the European Insurance and Occupational Pensions Authority) and additionally establishing a new European macro-prudential authority, the European Systemic Risk Board. After a false start in July, the European Parliament and Council agreed a final text of the proposals in September, and published the legislation in December. The new supervisory authorities sprang into existence on 1 January 2011, and have recently been busy appointing board members and chairpersons. It will be in the exercise of their increased powers through the revised legislative proposals mentioned above, that we really learn of the significance of the increased powers granted to these authorities in their founding Regulations. In the meantime it will be interesting to see what role they play in the negotiations of the final text of the EMIR, MiFID II, CRD IV and other legislation undergoing reform, such as the Market Abuse Directive and the proposed regulation on short selling.

In the UK, the newly formed Coalition government also took the view that the architecture of financial supervision needed to be changed, and the Chancellor announced in his Mansion House speech that the tripartite regime would be abolished, and the FSA would cease to exist in its current form. In July, the government published its first consultation paper setting out its proposals for the FSA to be replaced by a Prudential Regulation Authority (PRA) and a Consumer Protection and Markets Authority (CPMA); and for a Financial Policy Committee (FPC) to sit with the Bank of England as a macro-prudential authority. Another government consultation will follow in early 2011, accompanied by draft legislation that will comprise the core of the Bill that will provide the new statutory framework. The government hopes that this Bill will receive Royal Assent in the summer of 2012. In the meantime, the FSA hopes to run a shadow PRA and CPMA from spring 2011 onwards.

One of the key consistent themes for the FSA throughout 2010 was the treatment of client assets and money which was highlighted by the Lehmans insolvency. In January, the FSA published a Dear CEO letter regarding concerns over firms' handling of client money and assets and a Client Money and Asset report. In April, the FSA followed this up with a consultation paper proposing amendments to the client assets sourcebook (CASS) and during the next month it published a follow-up to the Dear CEO letter. Surprisingly, in the follow-up firms were asked to confirm whether or not they were in compliance with the requirements of CASS. In October, the FSA published a policy statement containing the finalised amendments to CASS but the FSA also warned that in the future firms could expect consultations on:

Another key issue that appeared on the FSA's radar during 2010 was remuneration. The changes to the FSA's Remuneration Code were published on 17 December and were prompted by European developments with amendments to the CRD and other domestic developments, including the provisions relating to remuneration within the Financial Services Act 2010 and Sir David Walker’s review of corporate governance.