The UK’s Financial Services Authority today published what it calls “radical” proposals to move to principles-based regulation.
The FSA has published its proposals for a radical simplification of the rules that firms must follow in carrying out investment business with customers. It says that it aims to chop the business conduct rulebook in half.
The regulator says that reform of the Conduct Of Business rules is a flagship project in its move towards more principles-based regulation and away from detailed prescriptive rules. The new conduct of business rule book will be substantially shorter.
The FSA’s Conduct of Business rules for investment business have been in operation since the FSA took on its regulatory responsibilities in December 2001. The rules cover, among other things financial promotions, how firms provide information and advice to clients, non-advised services, and dealing in and managing investments.
It says that the new rulebook is strongly in favour of principles and high-level rules, except where detailed provisions are either required by European Union Directives, or are the only practicable way to achieve a desired regulatory outcome.
“The move toward principles-based regulation means focusing on the outcomes that really matter rather than on procedural box-ticking. It also gives firms the flexibility to achieve those outcomes in the context of their particular business models. It is an approach that fits with the emphasis we place on senior management responsibility, a core FSA principle of good regulation,” FSA Director of Retail Policy Dan Waters said.
“NEWCOB’s key messages will be easier to understand and so easier to comply with, thereby helping firms to treat their customers fairly in line with one of the FSA’s core principles. But more principles-based regulation will not involve relaxing the standards of behaviour we expect,” Waters added.
Alongside the intention to simplify COB on more principles-based lines, a significant driver for change is the EU’s Markets in Financial Instruments Directive (MiFID), which affects some UK investment firms. But NEWCOB will apply to all regulated firms and business coming under the FSA Conduct of Business regime, not just those firms and types of business which are covered by MiFID.
The new rulebook, including MIFID and non-MiFID driven changes, will replace the existing book from November 1, 2007, the same time as MiFID comes into general effect across the UK and the European Union.
FSA publishes proposals for move to principles-based regulation
Regulator calls for a radical simplification of the rules
- By: James Langton
- October 31, 2006 October 31, 2006
- 12:50