In its Better Regulation Action Plan the regulator summarises more than 30 recent or proposed improvements to the way it regulates, including:
- introducing simpler, more up-to-date listing rules – reduced in length by 40% with further simplification to be proposed in 2006;
- encouraging industry, rather than regulatory, solutions for problems relating to soft commissions, bundled brokerage and contract certainty – regulation will be considered only if market failures remain uncorrected;
- removing barriers restricting access to retail financial advice – allowing alternative business models to remove barriers that impede competition and innovation;
- introducing more flexible rules for collective investment schemes – modernising and simplifying the rule book has halved its length;
- simpler conduct of business rules – consulting in 2006 on simplifying rules relating to dealing with retail customers, to include removing rules that are no longer effective or proportionate or which overlap and reviewing the balance between high-level and prescriptive rules;
- lifting audit requirements for smaller regulated firms – saving around 9,000 firms from having to have annual accounts independently audited;
- making application packs shorter – reducing the average time from application to authorisation by 25%; and
- cutting bureaucracy for approved persons – reducing form-filling and reporting requirements placed on their employers.
The current approach to regulation is a hybrid of high level principles and detailed rules and guidance. However, the FSA believes that better outcomes will be produced by encouraging a focus on the best actions to take in a particular situation rather than simply following a mechanistic process. This will not, as some have argued, result in any loss of predictability in the regulatory approach. The FSA will continue to provide guidance to firms, support industry solutions to problems that might otherwise be addressed through regulation, where these are appropriate, and take action against firms only when they are in clear breach of the principles.
John Tiner, Chief Executive, said:
"A shift towards a more principles-based approach will take time to implement, as much care will be needed to ensure that we retain rules that clearly add value in maintaining efficient orderly and fair markets or helping consumers secure a fair deal. Ultimately, though, this approach will produce better outcomes for both consumers and the financial services industry."
The plan also sets out areas in which regulation may increase, particularly through the requirement to implement European Directives. Here, the FSA is committed to implementing directives in a sensible and proportionate way. It is obliged to implement the minimum requirements, even if these would fail a cost-benefit analysis from the UK's viewpoint, but it will not "gold-plate" EU requirements. It will add requirements only when they are justified in their own right. In addition, the FSA's scope is due to be widened by the Government to include Self-Invested Personal Pensions, Home Reversion Schemes and Islamic home finance products. HM Treasury is also reviewing how a number of other sectors are currently regulated.
In a parallel piece of work, the FSA and the Financial Services Practitioner Panel are conducting a project to establish more authoritatively the costs of regulation on a firm and to highlight areas where the costs may exceed the benefits. This was due to be completed early next year, but will now report during the second quarter of 2006 to allow time for further data collection.
