FSA Finds Compliance Costs Rising In UK Financial Services Industry

by Robin Pilgrim, LawAndTax-News.com, London

02 July 2003

A study recently commissioned by the UK's Financial Services Authority (FSA) has shown that compliance costs for financial service providers have risen to an estimated 1.6% of annual operating costs over the past 18 months.

However, the study - undertaken by the Europe Economics consultancy - also found that in many cases, the increased compliance costs are as a result of new anti-money laundering legislation, which is not created or implemented by the FSA.

One-off costs such as retraining and legal advice following the switch to the Financial Services and Markets Act 2000, and the EU's Financial Services Action Plan also played a part in boosting the compliance figures.

According to Europe Economics, the hiring of outside counsel to help meet compliance obligations is neither cost-effective nor compliance-efficient. The consultancy recommended that financial services firms should improve relations with the FSA and merge their legal and compliance functions into a single department in order to reduce compliance costs.

Speaking following the release of the report, outgoing FSA chairman, Sir Howard Davies announced that:

'We accept that compliance costs have risen in the past few years - however, the Europe Economics survey finds that, in spite of that increase, compliance costs as a proportion of firms' operating costs are significantly lower than indicated in earlier surveys.' Echoing the findings of the Europe Economics report, he went on to add that:

'We expect these costs to drop away over time.'

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