The FSA has published a speech given by Hector Sants (Chief Executive, FSA) at the Financial Services Seminar in Tokyo. The speech was entitled The UK approach to regulation.

At the beginning of his speech Mr Sants refers to the recent loss of confidence in a UK mortgage bank (Northern Rock). From the FSA's perspective the lessons learned from this will mainly impact on the specific supervision of the institution in question and a review of the FSA’s rules concerning liquidity.

Mr Sants also sets out some broad observations about the FSA’s approach to regulation and these include:

  • The FSA’s regulatory regime is applied in exactly the same way to UK and non UK firms.
  • The FSA’s approach to regulation is risk based. This means that the FSA focuses its effort and resources where they are needed most.
  • Generally speaking, wherever possible the FSA relies on markets to solve problems.

In his speech Mr Sants also covers the FSA’s move to more principles based regulation noting that the FSA still has a detailed rule book and that he does not expect it to become a solely principles based regulator. However, the FSA does want to shift the balance of regulation further in the direction of principles. The two main reasons for this are:

  • It is more efficient for firms. When controlling risks firms may well develop approaches that differ in detail but achieve the same outcome. In this case they should be allowed to use their own approaches rather than the approaches arbitrarily set out by the FSA.
  • A principles based approach is more robust when markets and products are changing rapidly.

In his conclusion he states that recent market events have reinforced rather than contradicted this need to focus on the outcomes and consequences of management actions rather than just on the compliance of the actions with a set of rules.

View The UK approach to regulation, 7 November 2007