UK's Financial Services Authority To Simplify Handbook And Remove Unnecessary Rules

The Financial Services Authority today set out the first phase of its programme to simplify its Handbook and remove unnecessary Rules and Guidance as part of its drive to achieve better regulation for firms.

The Handbook review programme will focus on eliminating or changing requirements which are more restrictive than needed to achieve the FSA's statutory objectives, which do not deliver benefits to justify their costs, or which are not consistent with the FSA's focus on senior management responsibility. It forms part of the FSA's move towards a more principles-based approach.

Based on these criteria the first phase of the Review covers simplification and streamlining of Anti Money Laundering requirements, of the Approved Persons regime, and of the Training and Competence regime. It also outlines a major review of the retail Conduct of Business regime.

FSA Chairman Callum McCarthy said:

"We are determined to be more rigorous about the costs and burdens that regulation imposes on firms. We are also simplifying our Handbook requirements and the way we express them, which will help all firms but particularly smaller ones who do not have access to expert advice. It sits alongside other major initiatives we have in hand to make us an easier organisation to do business with such as Firms Online, Integrated Regulatory Reporting and the shorter application packs which will reduce the time and effort firms need to spend in dealing with us."

"We will continue to gather views from all our stakeholders about how other parts of the Handbook can be improved to deliver better regulation in practice."

The detailed proposals are:

Anti Money Laundering

The main proposal is to delete the Money Laundering sourcebook (ML) altogether from the Handbook and to replace it with brief, high-level provisions in the Senior Management, Systems and Controls sourcebook (SYSC). This less prescriptive approach will put a clear focus on senior management responsibility for AML systems and controls rather than simply treating AML as complying with detailed requirements. Firms will benefit from having more flexibility to implement AML systems and controls in the most appropriate way for them. It will also create a better fit between FSA requirements and money laundering legislation and industry AML guidance, so the overlaps are less.

Approved Persons

It is proposed to streamline and cut back the Approved Persons regime, which requires certain individuals within regulated firms to have express approval to carry on one or more specific Controlled Functions (CFs). At present, there are twenty-nine CFs and some of these would be merged together or removed. Also the need would be removed for Approved Persons status for individuals in firms who only deal with wholesale customers. This will make controlled functions simpler and less costly for firms to administer. For example, the FSA is looking to reduce the number of notifications of staff moves within firms.

Training and competence

The consultation proposes to reduce the scope of our detailed rules on training and competence, so that they do not apply to individuals who only deal with wholesale (or non-private) customers. These changes are designed to make sure that the Handbook better reflects the different levels of risk posed to our objectives by firms in their dealings with wholesale customers as compared with retail customers.

Retail Conduct of Business

The paper seeks feedback on work that the FSA is undertaking to simplify the retail Conduct of Business (COB) regime to make it easier to understand, comply with, enforce and amend. A planned new structure for COB will help achieve this. The FSA wants to ensure that it takes the opportunity of upcoming changes deriving principally from the new Markets in Financial Instruments Directive (MiFID) to review and simplify the sourcebook as a whole.

Cost of regulation

The FSA, in partnership with the Financial Services Practitioner Panel, is conducting a ground-breaking survey to establish and measure the real costs of regulation. Deloitte have been appointed to assist with the study including conducting research among regulated firms.

Background

1. Consultation paper 05/10: 'Reviewing the FSA Handbook' is available on the FSA Website.

2. Guiding Principles for reviewing the Handbook
   
   In reviewing the Handbook, the FSA will be guided by the following principles:
   
   
   1. focusing on making changes in areas where it can have real impact and only respond to suggestions to make changes to individual Handbook provisions where the benefits are clear;
   2. taking advantage of opportunities to streamline the Handbook as they arise – for instance, where there is scope to redraft material when implementing a directive. The FSA is already using the opportunity provided by MiFID to simplify the COB regime;
   3. adopting high-level standards where these are more appropriate than detailed rules. Benefits arise from focusing our attention on senior management responsibilities and allowing firms greater flexibility in some areas; and
   4. ensuring that the FSA does not leave firms without guidance that is useful.
3. The FSA will also bear in mind the need to:
   
   
   • avoid significantly changing rules and guidance that have only recently been introduced and be sensitive to areas already undergoing significant regulatory change;
   • avoid increasing costs for firms, in the long term. The FSA may ask firms to face one-off costs of change but, in many cases, they should see a continuing reduction in costs and regulatory burden from our proposals;
   • deliver appropriate overall consumer protection, in the long term. The review will try to identify the most appropriate tools for making sure that firms behave responsibly and treat their customers fairly;
   • avoid focusing on the length of the Handbook alone. The FSA will look to shorten the Handbook only where this does not make it difficult to understand or navigate; and
   • avoid introducing additional requirements when implementing European Directives without justifying them independently.

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.