FSA: response to Government's two-year review of the Financial Services and Markets Act 2000
FSA Chairman Callum McCarthy said: "The review picks up on the business priorities we have set for ourselves, and the three key outcomes they are designed to deliver – promoting financial markets which are efficient, orderly and fair; helping retail customers achieve a fair deal; and making the FSA itself a more efficient and effective organisation.
"A key question for us is: what can we do to reduce the FSA's contribution to the cost of regulation? In particular, we recognise that the cost of regulation falls disproportionately on smaller firms. So, one of our business priorities for the coming year will be to examine the impact of our regulation on this sector, look for further opportunities to reduce the burden where the impact of regulation is disproportionate to the benefit and to improve the way in which the FSA works with smaller firms.
"We are currently developing the scope of a project to consider this, in partnership with the independent Practitioner Panel, and will announce further details when we publish our Business Plan for 2005/06 in January."
During 2004, the FSA has taken a number of steps to make it easier for firms to do business with it. These moves come at a time when the demand from firms for FSA services, such as rule waivers, is expected to more than double as a result of the increase in the regulator's scope to include mortgages and general insurance and when there is a large increase in the number of small and medium-sized firms which the FSA regulates.
The FSA is:
- on course this financial year to more than halve the number of consultation and discussion papers it issues - from 55 last year to a projected 22 this year - and these are significantly shorter;
- making its Handbook more user-friendly by launching a series of sector-specific handbooks - covering about 70 per cent of the regulated community - which contain only the requirements relevant to those sectors. These will be similar to the "tailored" Handbooks for mortgage and general insurance intermediaries launched in August. Firms are also being offered the opportunity to build a personal handbook; in the first month this on-line service registered some 740,000 hits;
- simplifying and shortening the rules themselves. For example, the new Listing Rules are 40 per cent shorter than the rules they replace and 200 pages have been cut from the rules for unit trusts and other collective investment schemes.
As part of the FSA's restructuring last April, high volume regulatory processes have been centralised in the new Regulatory Services Business Unit which is driving efficiency improvements for both firms and consumers.
As a result the FSA has:
- set new service standards for some of its core regulatory processes that will deliver faster turnaround times, better communication and (from next year) targets on measurable improvements in the quality of service provided;
- introduced shorter application forms tailored to the most common types of applications, and begun to introduce "Firms Online", enabling regulated firms to complete regulatory transactions with the FSA via the internet. The first group of firms were linked up to this service last month. Others will be connected, in batches, over the coming months.
At the same time the FSA has made arrangements to improve its use of cost-benefit analysis (CBA) in developing the FSA's Handbook and this was considered further in the Government's review.
On behalf of the Treasury, the FSA obtained reports from National Economic Research Associates (NERA) on methodologies for ex-ante, ex-post and cumulative CBA, and from John Howell & Co (JHC) on how better to embed CBA within the FSA's policy making process. On the basis of these reports the FSA will further refine its CBA methodology, improve the implementation of the methodology through additional training and resources, and design projects for assessing the costs and benefits of regulations retrospectively in areas where doing so can be of value to firms and consumers.
These analyses should be an excellent means of testing in specific cases whether the benefits of new rules outweighed the costs as expected and in some areas may enable the FSA to assess the cumulative impact of regulation both in terms of costs to firms and consumers and the benefits that effective and proportionate regulation can deliver to the market as a whole. The reports from NERA and JHC, together with the FSA responses, are being placed on the FSA's Website today.
The Government review also describes the joint work the FSA and the Financial Ombudsman Service are conducting into the circumstances in which the FSA would take regulatory action instead of individual cases being determined by the Ombudsman. The FSA and the Ombudsman Service are currently considering responses to their joint consultation, which revealed little appetite for a formal appeals mechanism, and included helpful suggestions on how best to draw more external consumer and practitioner expertise into consideration of these so-called 'wider implications' cases. The FSA and the Ombudsman Service plan to publish in the New Year their conclusions on developing new arrangements in this area.
The FSA welcomes the OFT's conclusions, as part of the Government review, that the FSA’s actions are unlikely to have had any overall negative impact on the structure of markets and that the Financial Ombudsman Scheme and the Financial Services Compensation Scheme are also beneficial to competition as they build consumer confidence.