FSA proposes new risk-based strategy

The radical strategy, which was announced at a FSA conference by chairman Sir Howard Davies, is designed to shift the focus of the financial regulator to large organisations which pose the greatest threat to the FSA’s goals of preventing crime, protecting consumers, maintaining confidence and improving consumer understanding.

The approach will see the FSA scrutinising companies that account for 64% of the market share within the financial services sector, such as banks and building societies, while companies where the potential for risk is low will face spot checks and annual results monitoring, instead of regular FSA visits.

According to the FSA, 80% of the firms under its control would have little impact on its targets if they were to run into trouble, and by not subjecting them to regular visits, it will have the resources to tackle organisations where the risk of failure is high.

Sir Howard said this would mean a ‘hands-off approach’ for many smaller firms, and would allow the FSA to ‘allocate their resources in a rational way, rather than based on some historical model of sectoral regulation’.

He added that the new approach was already influencing the FSA’s stance on issues like mortgage regulation, endowment mortgages, polarisation and improving consumer understanding.

The new approach is to be phased in over the next two years after further consultation with organisations within the financial services industry.Links

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