UK’s Financial Services Authority Begins Costs Of Regulation Study

The Financial Services Authority (FSA) today announced the scope, form and timing of its study of the costs of regulation. 

The study, which is a priority for the FSA in 2005/06, was set out in the regulator's latest Business Plan, published in January.   

The study will be conducted in partnership with the independent Financial Services Practitioner Panel.  It will pay particular attention to the impact of costs on small firms and on wholesale firms operating in internationally competitive markets. Its purpose will be to:

• Provide robust estimates of the costs to firms of regulation that stems from the Financial Services and Markets Act 2000 (FSMA).  This will help to identify where there may be discretionary elements of regulation that are costly to firms but which are not matched by corresponding benefits. 
• Analyse the impact of regulation on firms' operating costs and how far these costs go over that which firms would spend anyway as part of day-to-day operation.
• Identify, wherever practically possible, the extent to which FSMA regulation affects the prices that firms charge, the volumes, quality and variety of products or services that firms offer and firms' ability to remain innovative and competitive.

Kari Hale, Director of Finance, Strategy and Risk at the FSA, said:

"It is a priority for the FSA to develop a deeper understanding of the impact of the costs of regulation on firms, especially smaller firms, and ensure that these costs are justified by the benefits.  If the study highlights areas of regulation that are expensive but offer little benefit to firms, consumers or the markets, we will look for ways of easing the burden on firms." 

Improving business capability and effectiveness, with a particular focus on small firms which now account for around 97% of the firms regulated, continues to be one of three principal objectives for the FSA.  Progress has already been made to make it easier for small firms to do business with the FSA, including:

• Regional visits, with surgeries, to enable firms to discuss topical issues with the FSA
• Industry training sessions designed and delivered by the FSA staff across the UK to help improve firms' understanding of its requirements
• Tailored handbooks for mortgage and general insurance intermediaries containing rules only relevant to these firms
• 'Firms Online' service on the FSA website to allow electronic submission of forms
• A single invoice showing all regulatory costs in one place.

The completed study will published towards the end of 2005.

 

Background

 

1. The central purpose of this project is to provide robust estimates of the costs to firms of financial services regulation in the UK stemming from the FSMA, and by doing so to help identify where there may be substantial costs from discretionary elements of regulation that are not matched by corresponding benefits.
2. The impact of FSMA regulation on firms' operating costs is to be analysed using an appropriate methodology reflecting discussions with relevant outside experts and allowing future replication for comparative purposes.  This analysis is to include provision of reliable estimates of the costs FSMA requirements impose on firms (in both wholesale and retail sectors) and on how far these are incremental costs given what firms would otherwise do.  The methodology will need to take into account firms' incentives to exaggerate or understate costs.
3. Specific attention will be paid to the impact of such costs on small firms and on wholesale firms operating in internationally competitive markets.
4. The analysis will also seek to identify wherever practically possible the nature of other costs of regulation, through mechanisms that affect prices, volumes, quality and variety, innovation and competition in particular markets. 
5. Where substantial sources of incremental cost are identified arising from discretionary elements of regulation (regulation under the Act that is not required by UK or international legislation), the project may be extended to analyse the benefits arising in particular markets from that discretionary regulation.
6. Membership of the project steering group

   John Tiner, FSA Chief Executive

   David Kenmir, FSA Managing Director of Regulatory Business Services

   Kari Hale, FSA

   Andrew Sykes, FSA

   Peter Edmonds, FSA

   Jonathan Bloomer, Chairman of the FSA Practitioner Panel

   Roy Leighton, member of the Panel

   Ruthven Gemmell, Chairman of the Small Business Practitioner Panel

7. 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.
8. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve our business capability and effectiveness