The fourth biennial survey of regulated firms provides feedback from the financial services industry on the FSA's performance over time. It also gives the Panel a basis on which to suggest improvements to the FSA, and give credit where it is due. Over 4,000 firms from across all sectors of financial services activity and size of business responded to the survey, which for the first time also captured the views of the newly regulated mortgage and general insurance (M&GI) population of firms.
Roy Leighton, chairman of the Panel, said: “Even though our survey has identified a number of specific areas where the FSA has improved at a day-to-day level, for example, in the area of relationship management, provision of guidance, the navigability of the Handbook and the general treatment of smaller firms, it is perhaps disappointing that – other than on the wholesale and major groups side - overall satisfaction ratings of the FSA by the firms it regulates have not much improved. This sense of disappointment is particularly evident amongst smaller firms who continue to feel frustrated by the constant change and uncertainty created by aspects of the FSA's strategic and policy work. We recognise that some of these changes result from EU initiatives, such as the Markets in Financial Instruments Directive (MiFID) and CAD.
"Many of the issues arising from this survey feed into the FSA's vision for the future shape of regulation. It is crucial that the key elements of that strategic plan, in particular those covering the retail sector, are clearly set out and delivered in practice if the FSA is to achieve its regulatory goals, and meet the legitimate expectations of the industry that it regulates.
“I am pleased to note that in the past the FSA has received our survey in the constructive spirit in which it is intended and has taken specific and speedy action to address some of the concerns raised therein – in fact, many of the aforementioned improvements can be traced directly back to initiatives suggested by previous Panel survey results. We sincerely hope that this will again be the case and look forward to working with the FSA on identifying solutions for further progress."
The survey's key findings include:
Overall unchanged satisfaction masks sectoral and size differences
Although firms continue to support regulation and recognise its benefits, their overall satisfaction with the work of the FSA has shown little or no sign of improvement, and varies sharply between sectors: major groups – wholesale and retail - have become more contented with their relationship with the regulator, but smaller wholesale and relationship-managed retail firms show little change from 2004. The smaller retail firms' overall views of the FSA have deteriorated, despite steps taken by the FSA to make itself more approachable. These firms now make up over 80% of the population of firms regulated by the FSA. Some smaller firms report that they are considering leaving the industry.
Uncertainty about principles-based regulation and TCF
In the qualitative study and the quantitative survey most firms welcomed the concept of principles-based regulation, as opposed to rules-based regulation. In a similar way to principles-based regulation, most firms welcomed the Treating Customers Fairly (TCF) initiative. In the qualitative study most firms held the view that treating customers fairly was best practice and essential to any good business. In the quantitative survey, nearly two-thirds of practitioners welcomed the TCF initiative.
However, the main concerns, shared by both large and smaller retail firms, centred on how the FSA will implement their new policy approach to the retail market: uncertainty about the move towards principles-based regulation; lack of clarity about FSA initiatives like TCF; concerns over enforcement and retrospective regulation; and continuing complaints over the cost and burden of compliance. On TCF, 52% of all firms still do not feel that the FSA has been clear enough about what this means in practice, and how it should be implemented. Similarly, 55% of firms are unclear about principles-based regulation, even though 75% support the idea.
Burden of regulation remains high
As has been the case in previous Panel surveys, the burden of regulation is still considered high across the spectrum of firms, particularly in the retail sector. Recent FSA initiatives like TCF, combined with a flurry of EU regulation, have still left 85% of firms with the impression that the level and costs of regulation will continue to increase.
Improvements
Firms recognise that the FSA has delivered improvements in several of its day-to-day interactions with firms, highlighted as problem areas in previous surveys. These include FSA handling of consultation procedures, satisfaction with relationship managers, willingness to provide guidance, the navigability of the Handbook, and the FSA's treatment of smaller firms (including the creation of the Small Firms Division). The website is also seen as improved. Unfortunately, progress in these areas is overshadowed by concerns about the FSA's approach to the retail market.
