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Hector Sants, Chief Executive of the Financial Services Authority (FSA), told an industry audience today that recent market turbulence and the problems at Northern Rock would not deflect the FSA from its commitment to more principles based regulation.
He said:
"We believe that these times of turbulent markets reinforce the importance for both the regulator, and the industry, to focus on the outcomes and consequence of actions. The FSA is, and will remain, a risk-based and evidence-based regulator."
Speaking at an FSA conference for retail financial services firms, Sants acknowledged that market conditions and the economic outlook were much less benign than at the time of the equivalent event a year ago.
"We recognise that the operating environment remains difficult, both for you and for us, and it is likely that these pressures will persist, particularly as investor confidence in some markets remains low.
"You should be preparing for this changed environment and you, and your customers, will need to recognise that there are both short and long-term risks, and think about the implications.
"You should not seek to divert your attention away from focusing on conduct of business requirements and our high level principles. In particular, you will need to continue the focus on treating customers fairly and to tackling areas of financial crime.
"Senior management should engage to a greater extent to ensure that firms are making the right judgements in delivering the outcomes we want to achieve."
Mr Sants reiterated his determination that the FSA should learn lessons from the events at Northern Rock.
He said:
"I commissioned an internal review of our supervision of Northern Rock in the period up to July last year. We have committed to publishing the conclusions next month. I can now say it will show that the supervision of the company did not meet the standards I would expect of the FSA, although I should also say that it is by no means necessarily the case that more active supervision on our part would have prevented what later occurred.
"That said, being prepared to examine ourselves and learn from our mistakes, in my view, is a crucial characteristic of a successful organisation. Successful organisations have a learning culture and an institution which expresses infallibility is not one to trust. I would thus like to think that our determination to be open and proactive should be seen as being to our credit and help give confidence to industry and consumers. To that end, I want to assure you that we will act decisively to address the shortcomings that emerge from the review."
Background
- The full text of the speech can be found on the FSA website.
- 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 promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.
