FSA business plan promises higher charges but more principles-based regulation

The UK regulator, the Financial Services Authority (FSA) yesterday published its Business Plan for 2007/8, which sets out its priorities for the coming year. It promises higher charges to regulated firms, but a continuing switch to principles-based regulation.
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The UK regulator, the Financial Services Authority (FSA) yesterday published its Business Plan for 2007/8, which sets out its priorities for the coming year. It promises higher charges to regulated firms, but a continuing switch to principles-based regulation.

In the Business Plan, the main priorities for the wholesale markets in 2007/8 are on implementing and influencing EU legislation, such as MiFID and Solvency 2, and increasing the focus on the prevention, detection and prosecution of market abuse and other forms of financial crime.

The plan also focuses on the regulator’s move towards more principles-based regulation (MPBR). The document also outlines increased spending on financial capability and investments to be made in people, information systems and the way the FSA regulates, to facilitate the change towards MPBR.

“More principles-based regulation will produce significant benefits for firms, markets and consumers but we need to invest in our people and information systems to realise this change,” says FSA CEO John Tiner. “This will result in an FSA that is better equipped to face future challenges and to deliver better outcomes for all our stakeholders. In the year ahead we are also placing increased emphasis on, and investment in, our National Strategy for Financial Capability. Lack of financial understanding among consumers has been recognised as a priority risk by the FSA and the need for more confident, capable consumers who can take advantage of a more dynamic market place has never been greater. We have set out our targets: we need this additional investment to achieve them.”

The FSA’s retail work centres on making the market more effective and the main priorities will continue to be Treating Customers Fairly (TCF), Financial Capability, the review of retail distribution and payment protection insurance.

New initiatives are limited and include work on the impact of climate change on the financial services markets, an assessment of how older consumers are served by the financial services market and a review of the risks within the commodities markets.

The 2007/8 budget shows an overall increase of 10.1%, resulting in a rise in the Annual Funding Requirement (the amount raised from firms) of 9.5%. The major components of this increase are a £7.4 million increase in spending on financial capability, taking the total expenditure in 2007/8 to £17.1 million and an up-front £11.3 million spend on IT operations which forms part of a multi-year, cost-efficient outsourcing agreement.

In addition, the board has approved a budget of up to £50 million over the next three years to improve the effectiveness of FSA staff and support the move to more principles-based regulation. This cost will be amortised in terms of firms’ fees over a period of 10 years.

“Those who pay our fees will benefit from having a regulatory system which focuses increasingly on achieving desired outcomes and from dealing with a more efficient, more responsive, better-focused organisation,” says Tiner. “Consumers will benefit from firms being more attuned to their needs and will receive appropriate information, while the financially excluded will benefit from a more active programme to increase their understanding of financial matters.”

Published alongside the Business Plan, the 2007/08 Fees Consultation paper (CP07/3) explains how the FSA proposes to raise the annual funding requirement from fee payers and provides an opportunity for comment on the fee and policy proposals.

The FSA will again facilitate a plan operated by a credit provider to allow firms to pay fees by instalment, and the FSA’s Online Fees Calculator on its website allows firms to calculate their likely fees and levies in 2007/08 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 2007.

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