UK: FSA Annual Public Meeting

The FSA held its sixth Annual Public Meeting on Thursday 21 July. Callum McCarthy, the Chairman of the Financial Services Authority, gave the opening speech. Other speeches were given by Ann Foster, Chief of Consumer Panel, Jonathan Bloomer, Chair of Practitioner Panel and Ruthven Gemmell, Chair of the Smaller Businesses Practitioner Panel.

After the Annual Public Meeting, three parallel-running workshops were held:

1. FSA’s small firms agenda
2. Making retail markets work
3. Implementing the Capital Requirements Directive and the Markets in Financial Instruments Directive

To view the full article, containing summaries of the speeches and issues raised, please see below:

The FSA held its sixth Annual Public Meeting on Thursday 21 July.

Callum McCarthy, the Chairman of the Financial Services Authority, gave the opening speech. Some of the main issues he highlighted were:

• smaller businesses: FSA pays particular attention to the needs of smaller businesses. Decisions in Europe and by the Treasury to make the FSA responsible for the regulation of general insurance and mortgage business have resulted in some 14,000 newly authorised firms, almost all of which are smaller firms. More than 90% of firms now regulated by the FSA are categorised as smaller firms, making a 'one size fits all' regime inappropriate, leading to fundamental changes in processes and approaches.

• the Annual Report – three key areas:
• promoting efficient, orderly and fair markets - FSA is committed to making markets meet the demand for financial services, for both customers and providers. FSA regulates only where there is market failure and where regulation will bring more benefits than costs.
• helping the retail consumer obtain a fair deal - There are particular concerns about the information gap between financial services suppliers and customers. FSA is working to improve how both suppliers and consumers act: on the supply side to encourage provision of clearer information and good practice, and on the demand side to encourage greater competence and more attention to financial decisions which individuals must take.
• making the FSA an easier organisation to do business with, by improving business capability and efficiency. Recruitment, training, retention and rewarding of staff is critical.
• consumer confidence: FSA wants increased confidence for consumers so that they can make choices on the basis of reliable information. FSA also wants confidence for market practitioners that they are operating in markets with proper rules and policing and are dealing with properly capitalised counter-parties.

• new legislation: the present volume of regulatory initiatives affecting financial services is a significant issue: e.g. the application of Sarbanes-Oxley; the preparation for Basel 2; the implementation of various directives under the Financial Services Action Plan (e.g. the Prospectus, Market Abuse and Market in Financial Instruments Directives), the new International Financial Reporting Standards, FSA's work to introduce accounting and reporting standards for life insurance companies. Many initiatives result from decisions taken out of London. FSA does much to influence the primary decision, although the principal responsibility for this lies with the British Government. FSA is often given the responsibility to implement an original decision which may not have met FSA's tests for their regulatory initiatives, i.e. there should be both market failure and a positive cost/ benefit analysis. This is particularly a problem for EU initiatives where commitment to impact assessment has historically been more clear in principle than observable in practice.

• MiFID: a current concern for many firms is the Market in Financial Instruments Directive (MiFID). It is unsatisfactory that UK financial services firms face major changes, and associated costs, for an initiative, which has not been subject to a comprehensive EU cost-benefit analysis of the specific contribution it might make towards a more integrated European capital market. FSA will support Commissioner McCreevy's determination to make rigorous impact assessment a vital determinant of EU legislation. FSA is currently planning to consult on MiFID implementation in November. It is clear that the MiFID changes will impose significant costs on the UK market. FSA shares the worries about the potential scale of the costs. It is important that the level 2 measures now under discussion in Europe are not disproportionately burdensome. FSA strongly supports Commissioner McCreevy's determination to avoid unnecessary regulatory burdens. FSA will seek to avoid imposing unnecessary costs with regards to detailed implementation in the UK - it will not seek any super-equivalent provisions unless there is a clear market value. It will take the opportunity to look at the scope for eliminating existing rules where MiFID will operate.

• risk: FSA is a risk-based organisation. It does not seek to prevent all financial failures, but accepts a regime in which some firms will fail. FSA does not set out to visit all firms for which it is responsible. Rather it relies on sampling techniques based on the data provided on "thematic work", (where FSA chooses to operate proportionally i.e. to mitigate risk only if the risk is sufficient to justify the action.)

• costs: FSA has taken the concern about the costs of regulation for financial services companies very seriously. It asks the following questions:
• how much of the regulatory costs are associated with regulation specific to financial services as distinct from general company or employment law?
• how much arises from actions of the FSA as distinct from EU initiatives ?
• what costs would the firm incur anyway?

FSA is working with the Practitioner Panel to provide data to advance an informed discussion on financial regulation. Deloittes has been commissioned to look at institutional fund management, corporate finance and financial advisers. This will feed into the work recently announced by the Government on securing better regulation. FSA is determined to independently identify ways of improving efficiency and accountability.

• regulations – rulebooks: the following points were made:
• rules are to be clear, comprehensible, and no longer than necessary.
• when handbooks are revised they are shortened: the new listing rules are one-third shorter than those they replace; the new Collective Investment Scheme rules are half the size of the old. FSA will seek to accompany the introduction of new rules from MiFiD by eliminating existing regulations, and reviewing whether all the existing rules are necessary.
• to reduce the size of the rule-books, FSA wants to rely more on general principles, the discharge of responsibilities by senior management of firms, and the development of good practices. FSA has asked trade associations and firms to help identify detailed rules which could be eliminated and replaced by reliance on principles which none would contest. So far the response has been limited.
• anti-money laundering provisions: FSA wants to replace detailed guidance on anti-money laundering by high-level requirements about systems and controls. The Treating Customers Fairly programme aims to establish principles and spread good practice, avoiding detailed regulation.

• accountability: a central concern is how to provide appropriate accountability to balance FSA's powers and duties. FSA is seeking to make it easier to measure what they are delivering against their plan, through identifying specific milestones within each strategic objective and reporting on them. Of the 36 milestones set out in FSA's plan for 2004/05, 31 were achieved. FSA now has 70 service standards, and reports regularly on performance against each. FSA has fully met 60% of these, and narrowly missed a further 28.

Other speeches were given by:

• Ann Foster, Chief of Consumer Panel –for summary copy/paste the following link into your browser.
  http://www.law-now.com/CS2000/internet/EN/co50law-now/co55archive/2005/fsaapmafs1.htm

• Jonathan Bloomer, Chair of Practitioner Panel –for summary copy/paste the following link into your browser.
  http://www.law-now.com/CS2000/internet/EN/co50law-now/co55archive/2005/fsaapmjbs2.htm

• Ruthven Gemmell, Chair of the Smaller Businesses Practitioner Panel –for summar. copy/paste the following link into your browser
  http://www.law-now.com/CS2000/internet/EN/co50law-now/co55archive/2005/fsaapmrgs3.htm

After the Annual Public Meeting, three parallel-running workshops were held on:

• FSA's small firms agenda –for summary of issues copy/paste the following link into your browser.
  http://www.law-now.com/CS2000/internet/EN/co50law-now/co55archive/2005/fsaapgw1.htm

• Making retail markets work –for summary of issues copy/paste the following link into your browser
  http://www.law-now.com/CS2000/internet/EN/co50law-now/co55archive/2005/fsaapmw2.htm

• Implementing the Capital Requirements Directive and the Markets in Financial Instruments Directive –for summary of issues copy/paste the following link into your browser.
  http://www.law-now.com/CS2000/internet/EN/co50law-now/co55archive/2005/fsaapmw3.htm

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 26/07/2005.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.