FSA Releases 2007/8 Business Plan; ABI Reacts Positively

The UK’s Financial Services Authority (FSA) has published its Business Plan for 2007/8, which sets out its priorities for the coming year. The plan “focuses on the organization’s move towards more principles-based regulation (MPBR),” said the announcement.

The document also outlines increased spending on financial capability and key investments to be made in people, information systems and the way the FSA regulates, to facilitate the change towards MPBR.

The FSA’s Chief Executive John Tiner noted: “More principles-based regulation will produce significant benefits for firms, markets and consumers but we need to invest in our people and information systems to realize this change. This will result in an FSA that is better equipped to face future challenges and to deliver better outcomes for all our stakeholders.

“In the year ahead we are also placing increased emphasis on and investment in our National Strategy for Financial Capability. Lack of financial understanding among consumers has been recognized as a priority risk by the FSA and the need for more confident, capable consumers who can take advantage of a more dynamic market place has never been greater. We have set out our targets: we need this additional investment to achieve them.”

The Association of British Insurers (ABI) reacted positively to the FSA’s Business Plan. Director General Stephen Haddrill commented: “The FSA’s commitment to principles-based regulation is good news for customers and companies. The ABI has long argued for less prescription and more high-level principles in the regulation of financial services. This changes the job of the regulator, and its relationship with companies. We accept that, as part of this, the FSA will need to invest in training and retention of its staff.

“We’re also pleased that more emphasis is to be placed on improving financial capability. It is vital that consumers are given the tools to make informed decisions about financial services, particularly as we move towards the proposed new pensions system. The insurance industry looks forward to working with the FSA and others on this important issue.”

The Plan’s main priorities for wholesale for 2007/8 are “on implementing and influencing EU legislation such as MiFID and Solvency 2 respectively and increasing focus on the prevention, detection and prosecution of market abuse and other forms of financial crime,” said the announcement.

“The FSA’s retail work centers on making the market more effective and the main priorities will continue to be on Treating Customers Fairly (TCF), Financial Capability, the review of retail distribution and payment protection insurance.

“New initiatives are limited and include work on the impact of climate change on the financial services markets, an assessment of how older consumers are served by the financial services market and a review of the risks within the commodities markets.”

The FSA’s 2007/8 budget shows an overall increase of 10.1 percent, resulting in an increase in the Annual Funding Requirement (the amount raised from firms) of 9.5 percent. The bulletin said the “major components of this increase are a £7.4 [$14.4 million] increase in spending on financial capability, taking the total expenditure in 2007/8 to £17.1 million [$33.3 million] and an up-front £11.3 million [$22 million] spend on IT operations which forms part of a multi-year cost efficient outsourcing agreement.”

In addition the Board has approved a budget of up to £50 million $97.4 million] over the next three years to improve the effectiveness of FSA staff and support the move to more principles based regulation. This cost will be amortized in terms of firms’ fees over a period of 10 years.

“Those who pay our fees will benefit from having a regulatory system which focuses increasingly on achieving desired outcomes and from dealing with a more efficient, more responsive, better-focused organization,” Tiner added. “Consumers will benefit from firms being more attuned to their needs and will receive appropriate information, while the financially excluded will benefit from a more active program to increase their understanding of financial matters.”