Steve Walker, managing director of Promise Finance, believed the Financial Services Authority’s (FSA) regime would allow small firms to take more risks, to the detriment of the industry and the consumer.
However, at the same time, larger firms would lose out because they would be worried about incurring the wrath of the regulator should they step out of line and would adopt a more cautious manner.
Walker said: “If you have a rulebook then you know what you have to do but when there are grey areas, larger firms adopt a more cautious approach so they will be more compliant than they need to be. They will then have a disadvantage in the market as smaller players could have less regard for compliance, have a greater tendency to cut corners and think they will escape the scrutiny of the FSA.”
Sally Laker, managing director of Mortgage Intelligence, said there was an ambivalence when it came to principles-based regulation for small firms.
Laker commented: “I don’t think the FSA has outlined what plans it has for principles-based regulation for small firms. From a small firms’ point of view, I don’t know if they are now doing everything exactly as they should be. Bigger firms will have to make sure they are as close to what the FSA wants.”
Sir Callum McCarthy, chairman of the FSA, addressed the problem recently, and said: “Although in very many instances the FSA will be able to – indeed should – do no more than expose the implications of a decision which must lie with the firm, there will be a need for a system within the FSA which allows us to give sensible, consistent and timely judgments for small firms as much as large ones.”
