UK markets watchdog under fire over cost of regulations

The UK market watchdog was today criticised for the “excessive and growing” costs faced by financial services firms in complying with its regulation.

An independent survey carried out by the Financial Services Practitioner Panel, a statutory body set up to monitor the Financial Services Authority’s effectiveness, found that just one in seven firms thought the cost of compliance was reasonable.

The research, which questioned 3,890 senior executives in financial firms, found that 50% of chief executives thought the costs were excessive, compared to just a third when the same survey was carried out in 1999 before the FSA became regulator on December 1 2001.

Two-thirds of those questioned also said they expected the cost to go up in the future.

Firms also complained about the “degree of unremitting change” introduced by the FSA, and said they thought the regulator’s performance had deteriorated.

But overall they thought the creation of the FSA as a single regulator had been beneficial, and praised it for its strong line with persistent offenders, its approach to consultation and its openness.

The panel said: “It is early days for the FSA and there are strong positives around the openness of the FSA and its approach to consultation.

“There are also some storm warnings in the results of this survey.

“There may be a growing gap between expectations and experience, a growing anxiety of where all this change will lead, and a frustration growing over the difficulties of obtaining clear and consistent guidance.”

It added that firms had also complained about the complexity of the FSA’s handbook.

Roger Sanders, one of the joint chairmen of the FSA’s Small Business Practitioners Panel, said:

“Smaller businesses are feeling the burden of regulatory pressure and cost.

“The FSA needs to decide how it can take better account of their views, particularly with the new entrants to regulation from general insurance and mortgage intermediaries being mainly small firms.”

The FSA said the survey provided it with a “valuable insight” which would help it to develop its regulation.

FSA chairman Sir Howard Davies said: “The FSA was officially launched at a time when the profitability of individual firms was under pressure.

“Against that background, it is not surprising that the costs of regulation are particularly under the spotlight.

“We will use the findings in this report to help us make our regime more cost-effective in the future.”

The FSA added that it was working on streamlining the processes for giving guidance to firms and said it had commissioned research to look at the issue of the cost of meeting regulation.