The Financial Services Authority (FSA) annual public meeting provided the financial services industry with an opportunity to discuss the impact of the FSA, while also allowing the regulator to comment on the past year, and set its targets for the next 12 months.
Beginning the meeting, John Tiner, chief executive at the FSA, said the past year had proved positive, with new challenges for the regulator and a strong year across most of the financial sector, with evidence of strong house price growth and commodity values.
However, despite a positive year, Tiner and others at the meeting confessed the watchdog still had much to do to continue to effectively carry out its role as regulator of the financial services sector.
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Speaking at the event Tiner said: “Market conditions presented both opportunities and threats for participants in the financial services sector, including the FSA.
“Last year saw the bedding in of the regulation of mortgage and general insurance mediation. The introduction of these sectors into FSA regulation was a significant change to both the nature and extent of FSA’s work, increasing the number of firms we regulate by over 14,000 to 29,000 – many of those being small firms which had never previously operated under statutory regulation.”
Principles-based approach
With the FSA taking this new direction, more than doubling the number of firms it regulates since adding the mortgage market to its regulatory scope, it has made moves to improve the way it conducts itself, with the introduction of specific websites, its move to improve the way it deals with small businesses, and its move to a principles-based approach, moving away from its prescriptive 9,000 page rulebook.
While supporting the move to a principles-based approach, the panels associated with the FSA admitted some concerns over the transition.
Roy Leighton, chair of the practitioner panel, said: “Moving to a principles-based approach is pioneering work, but it will encounter teething problems. As a result of the approach those involved with compliance will feel they are ‘getting it in the neck’ and supervisors must be sufficiently skilled to look at the risks.”
He added: “There must be a collective effort to endorse the ethics of such an approach,” – a sentiment shared by Tiner who admitted the approach was ‘an act of faith’. He believed moving away from set ruling would help instil market confidence, from consumers and those involved in the financial sector. “There is a clear view that putting responsibility on management to deliver confidence is likely to produce a better outcome than telling people exactly what to do,” he said.
With the move away from prescribed rulings, John Howard, chair of the consumer panel, said trade associations would be under some stress to help its members integrate principles into their systems. However, he argued that guidelines issued by trade associations could hinder the success of a principle approach. “The consumer panel has concerns that the move to a principles-based approach could result in a lot of guidelines being published. What is the point of moving to a principles-based approach, if there are then lots of guidelines?”
Mark Rothery, chair of the small business practitioner panel, urged the FSA to give intermediaries time to implement the changes necessary to comply with a shift in regulatory direction. “There is a concern by some people that a principles-based approach could be a Trojan horse. The FSA must give clear guidance and a suitable length of time for small business to implement the changes that they will have to undergo.”
Future concerns
In the meeting, the FSA also highlighted concerns at the self-certification market and worries over the advice given to borrowers taking out interest only products, while Tiner said targeting the rising levels of unsecured debt remained high on the regulators agenda. “Heightened concerns are emerging in the unsecured market, especially among younger people who generally cannot look to the rising housing market to cushion their risk. This, coupled with the evidence from our financial capability baseline survey earlier this year that just over half the population aged over 18 are not prepared to meet unexpected challenges, like a drop in income, as well as the need to provide for their retirement, makes for a worrying picture that could quickly become a reality if, for example, the labour market was to deteriorate significantly.”
With FSA regulation of the mortgage market almost two years old, the FSA confirmed it still had much to do. However its move to increase financial capability among the British public has been met with general approval, with plans to increase its spending on this ongoing initiative to reach £15 million per year within five years, a move that cements the regulator’s desire to improve the financial knowledge of consumers, which can only help to benefit the entire financial services industry.
