FSA Sets Out Priorities And Budget For 2006/07

The Financial Services Authority today publishes its Business Plan for 2006/07, setting out its priorities for the year ahead and its planned budget to achieve its objectives.

Priorities

The planned priorities for the FSA in 2006/07 are to:

• Perform firm and market supervision broadly in line with its current risk appetite. Central to this will be improvements to the "ARROW" process, the way in which the FSA assesses risk and applies its resources accordingly. Over the past two years the regulator has been investing heavily in updating and improving its risk-based approach. In September 2005, a new approach to the way in which the FSA communicates individual risk assessments to firms was introduced. Following this, the FSA aims to begin the roll-out of the improved "ARROW II" process from March 2006. This is intended to provide an FSA-wide integrated risk management process that results in timely and effective decision-making.
• Begin or complete priority thematic work - where the FSA studies a particular sector or aspect of the regulated market - targeted on the basis of risk. Recent examples of thematic work include: inquiries into sales of Payment Protection Insurance and subsequent follow-up work, including enforcement investigations, with individual firms; the review of the handling of client money within general insurance brokers; and the study carried out during the first half of 2005 into current market practice on the identification and management of conflicts of interest.
• Implement the Markets in Financial Instruments Directive (MiFID) and Capital Requirements Directive to a high standard; continue its international leadership on Solvency 2 and at the international level more generally.
• Begin new enforcement cases as well as putting in place the remaining recommendations from the Strachan review of enforcement processes, published last July.
• Continue its leadership role on financial capability, driving forward in particular work in the areas of schools, higher education, young people not in education, employment or training and the workplace. It will also make further improvements to the information and services it provides to consumers.
• Strengthen its analytical research and understanding of key sectors - trends, competition drivers, supply chains, market structures - to better inform its regulation.
• Maintain effective management and oversight of finance, risk, resource allocation, legal issues and internal controls.
• Make improvements to its information systems infrastructure and functionality.
• Significantly improve performance against its service standards.
• Accelerate the change necessary to deliver its better regulation agenda, as set out in the Better Regulation Action Plan in December 2005, including raising further the quality and training of its people.

The FSA's chief executive, John Tiner, said:

"Much of our work in 2006/07 will be a continuation of projects or themes already in process. We will both continue to improve our risk based approach to regulation and firm supervision and take forward our commitment to deliver a more effective regulatory regime by changing the balance significantly towards a more principles-based approach. I believe that this twin approach is right for the UK financial services industry and its customers and for delivering better regulation.

"While much of our policy work continues to be driven by initiatives at an EU and international level, we have wide discretion over much of what we do day-to-day. So we continue to be alert to market developments and we identify in this Business Plan a small number of new themes. While this plan represents our best judgement on what we currently see as priorities, we will not hesitate to reposition our resources in the event that a major new issue emerges during the year."

The Business Plan links closely with the Financial Risk Outlook 2006, published last week, which describes the wider environment relating to the financial services industry and the risks to delivery of the FSA's aim of maintaining efficient, orderly and fair markets, helping retail customers achieve a fair deal and improving its business capability and effectiveness.

Budget and fees

The budget for 2006/07 will be £276.1m, an increase of 3.25% on the previous year's budget of £267.4m. This will include £2m to fund improvements to the enforcement process recommended by the Strachan Review and funding for an overall 4.5% increase in staff pay. This is required to provide the necessary flexibility to respond to the pay pressures in some sectors. To meet the budget, the FSA will need to improve productivity by £7m.

Published alongside the Business Plan, the 2006/07 fees consultation paper (CP06/2) explains how the FSA proposes to raise the annual funding requirement from fee payers and provides an opportunity for comment on the fee proposals.

Overall the FSA anticipates that around 82% of firms will see a decrease, no change, or an increase of less than 3% in their periodic fee in 2006/07. Current projections indicate that minimum fee-payers will pay fees in 2006/07 that are no more than 2.5% higher than those they paid in 2005/06, and many of them will see no increase at all.

To help payment of fees by firms, the FSA is again looking to provide an option to pay by instalments. This will be on a similar basis to the market solution the FSA facilitated in 2005/06 under which a credit provider supplied firms with an instalment plan for fees and levies. The scheme has been very successful with more than 3,200 firms choosing to pay by instalment.

The FSA will today introduce an Online Fees Calculator on its Website which will allow firms to calculate their likely fees and levies in 2006/07 based on their fee tariff data and the proposals in the Fees Consultation Paper. The FSA will update the Fees Calculator with the actual rates once they have been finalised in May 2006.

Background

1. The Business Plan 2006/07 is published today on the FSA web site.
2. The Fees consultation paper (CP06/2), also published today, sets out the FSA's fee proposals for 2006/07 for the firms it regulates.
3. The FSCS Plan and Budget 2006/07, also published today on the FSCS website, provides detailed background information for claims forecasts and potential levies.
4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.