Commenting on the Financial Services Practitioner Panel survey published today, FSA Chairman Howard Davies said: "The FSA was officially launched at a time when the profitability of individual firms was under pressure. Against that background, it is not surprising that the costs of regulation are particularly under the spotlight. We will use the findings in this report to help us make our regime more cost-effective in the future."
The FSA notes many positive aspects of the Practitioner Panel's report such as:
- By a margin of almost three to one, chief executives of the larger firms believe strongly the new regulatory regime has been either very or fairly beneficial. This opinion is reflected within the other two groups surveyed - heads of compliance and smaller organisations.
- The report shows continued support for strong regulation. The FSA is seen to be taking a firm line with businesses which break the rules.
- The FSA is also seen to be listening to consumer views when deciding its policies. On balance, firms believe that regulation has been good for the consumer.
- It was to be expected that in the early days of the new regime the demand for guidance and rule waivers would be particularly strong. We accept that we have not fully met expectations in this area. We now have a business improvement programme in hand designed, among other things, to streamline our processes for giving guidance to firms;
- the FSA agrees that its Handbook is substantial and accepts that some firms have found it difficult to navigate. The FSA has already developed a Specialist Sourcebook for credit unions and is preparing further such Sourcebooks for the new mortgage and general insurance regimes. In other areas we have developed Specialist Guides, signposting those elements of the Handbook which apply to particular market sectors, for example Oil Market Participants. In the next few months we shall be launching on our website an improved version of the Handbook which will be easier to navigate and will provide the platform for further improvements in ease-of-use during 2003;
- we are concerned at the evidence in the Report that the costs of regulation have gone up. In our experience there appears to be little direct relationship between the amount of money which firms spend on compliance and the resulting outcomes - some firms deliver effective compliance on a modest budget, whilst others spend considerable sums on compliance, but with unsatisfactory results. So we are commissioning a pilot research project to consider this question further and to help us understanding these diverging patterns of expenditure and outcome.
- Detailed findings of the survey included:
- Effect of the FSA upon financial services as a whole: Chart 10.1 on Page 111 says that - taking "very or fairly beneficial" against "fairly or very harmful" - 41 % of chief executives thought the effect of the FSA on financial services had been beneficial against 15% who thought it had been harmful. This therefore is a positive plus for the FSA of 26%. Amongst heads of compliance the ratio was slightly more favourable with a "plus balance" of 27%. The smaller organisations were more divided on this topic, but even there the balance between beneficial and harmful was still a plus for the FSA, at 7%.
- Too many reviews: The survey shows a strong view amongst practitioners that there've been too many reviews of financial services. Chart 11.1 on Page 131 indicates that around 70% of chief executives and heads of compliance - and 85% of practitioners from smaller organisations - agreed that "there are too many regulatory reviews being undertaken of financial services." - this rose to over 90% among IFAs and the smaller life/pensions insurance firms. Amongst chief executives 72% agreed either "strongly or slightly" with this proposition. Comparable figures for heads of compliance were 69%, and for smaller organisations 85%.
- Should the FSA carry out future reviews?
Chart 11.1 also shows that around two-thirds of practitioners agreed that "regulatory reviews in financial services should be carried out by the FSA and not by other government departments". The proportion agreeing was higher in smaller organisations, with 71% agreeing, and rose to over 80% amongst chief executives of building societies and general insurance firms, and over 90% amongst heads of compliance in building societies.
- 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.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
