FSA publishes annual report

The report details how the FSA has delivered outcomes for both firms and consumers throughout the year under the three headings which cover all of the FSA's work. These are:

• to promote efficient, orderly and fair financial markets, both wholesale and retail;
• to help the retail consumer for financial services achieve a fair deal; and
• to improve its business capability and effectiveness, so as to make the FSA easier to do business with.

In his introductory statement, FSA chairman, Callum McCarthy, said: "2006/07 was, like other years, a busy year for the FSA. This reflected the final stages of some longstanding pieces of work, including the implementation of the Markets in Financial Instruments Directive and the Capital Requirements Directive. The year also marked important developments in work which will continue to be central to the FSA; our work on financial capability is a prime example of this.

"At the same time, we have started a process of farreaching changes in the way in which we run the FSA, designed to improve the quality of our output and the efficiency with which we discharge our responsibilities. This report sets out in some detail what we have done against our original plan. It is a plan which we have broadly delivered."

McCarthy identified the success of "informal encouragement over regulatory action", offering the examples of establishing greater contract certainty in the UK insurance market and the ending of the backlog of trade confirmations in credit risk derivatives where market-led solutions were found.

He said: "We continue to review our existing regulations, to see where we can eliminate regulations we judge unnecessary, or replace specific rules with reliance on principles. And we continue to adopt policies which are riskbased and proportionate. We accept that we cannot achieve, and that it would be counterproductive to pursue, a zero-failure approach. Investment involves risk, and risk entails occasional failure."

The FSA Chairman also acknowledged that more problems lie within the retail market than in wholesale. He lists the reasons as complex products; the information asymmetry between providers and consumers; and the low levels of competency of many consumers in making financial decisions.

He said: "We have devoted increased resources and attention to tackling those underlying problems. It will be a long haul to solve them, but we are determined to do so."

McCarthy also praised John Tiner's contribution to the FSA. He said: "During his time as chief executive, the management structure and systems of the FSA have been substantially altered and improved, and we have made strides towards becoming a much more outcomefocused, more productive organisation. All of us will miss him, none more than I."