The UK Financial Services Authority today published plans for moving it financial services regulation towards high level principles rather than detailed rules and guidance.
In its action plan, the regulator summarizes more than 30 recent or proposed improvements to the way it regulates, including: introducing simpler, more up-to-date listing rules; encouraging industry, rather than regulatory, solutions for problems relating to soft commissions, bundled brokerage and contract certainty; removing barriers restricting access to retail financial advice; introducing more flexible rules for collective investment schemes; simpler conduct of business rules; lifting audit requirements for smaller regulated firms; making application packs shorter; and, cutting bureaucracy for approved persons.
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.
It insists that 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.
“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,” said John Tiner, chief executive of the FSA. “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 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.