The FSA has published a speech by Hector Sants (Chief Executive, FSA) entitled Judgements on judgements - Retail firms and principles-based regulation. In his speech Mr Sants discusses recent market events and how they have impacted on the FSA’s work, how the FSA intends to deal with the concerns that these events have raised and the FSA’s Business Plan 2008.
When discussing recent market events Mr Sants mentions that the FSA commissioned an internal review of its supervision of Northern Rock plc in the period up to July last year. The FSA will publish the conclusions of the internal review next month. Mr Sants states that the supervision of Northern Rock plc did not meet FSA standards although it is not necessarily the case that more active supervision by the FSA would have prevented what later occurred.
In any event, the FSA will be conducting more rigorous supervisory reviews of firms to ensure that its qualitative requirements are applied appropriately. The FSA is also developing new reporting requirements to support its work in monitoring liquidity.
Mr Sants then discusses regulatory philosophy and makes it clear that the FSA’s move towards a more principles-based and outcome-based regime has not changed.
Mr Sants then discusses risks and refers to the FSA’s Financial Risk Outlook which was published last month. The purpose of the Financial Risk Outlook is to help firms consider the potential economic scenarios and correspondent risks that could emerge. The document identifies five priority risks which should be considered by firms. Mr Sants recommends that firms should look at this document and consider how the five priority risks may affect them over the coming year. In addition, firms will also need to focus on conduct of business requirements and the FSA’s high level principles.
In relation to its retail priorities the FSA will continue to focus on the Treating Customers Fairly initiative, the Retail Distribution Review and the Financial Capability programme. Also, the FSA will continue to prioritise achieving 'credible deterrence' in its enforcement strategy. The FSA will focus on those cases where pursuance will make a real difference to consumers and markets, using enforcement strategically as a tool to change behaviour in the industry. In line with the move towards more principles-based regulation, it is likely that there will be more enforcement cases where principles, rather than specific rules, have been breached.
View FSA speech - Judgements on judgements - Retail firms and principles-based regulation, 27 February 2008