FSA Publishes Annual Report

by Robin Pilgrim, LawAndTax-News.com, London

28 June 2007

The UK's Financial Services Authority (FSA) last week published its Annual Report for the year 2006/07.

The report detailed the ways in which the FSA has delivered outcomes for both firms and consumers throughout the year, under the three headings which cover all of the FSA's work.

These are:

• To promote efficient, orderly and fair financial markets, both wholesale and retail;
• To help the retail consumer for financial services achieve a fair deal; and
• To improve its business capability and effectiveness, in order to ensure that the FSA is easier to do business with.

In his introductory statement, FSA Chairman, Callum McCarthy stated that:

"2006/07 was, like other years, a busy year for the FSA. This reflected the final stages of some long standing pieces of work, including the implementation of the Markets in Financial Instruments Directive and the Capital Requirements Directive. The year also marked important developments in work which will continue to be central to the FSA; our work on financial capability is a prime example of this. "

"At the same time, we have started a process of far reaching changes in the way in which we run the FSA, designed to improve the quality of our output and the efficiency with which we discharge our responsibilities. This report sets out in some detail what we have done against our original plan. It is a plan which we have broadly delivered."

Mr McCarthy identified the success of "informal encouragement over regulatory action", offering the examples of establishing greater contract certainty in the UK insurance market and the ending of the backlog of trade confirmations in credit risk derivatives where market-led solutions were found.

He explained that:

"We continue to review our existing regulations, to see where we can eliminate regulations we judge unnecessary, or replace specific rules with reliance on principles. And we continue to adopt policies which are risk based and proportionate. We accept that we cannot achieve, and that it would be counter productive to pursue, a zero-failure approach. Investment involves risk, and risk entails occasional failure."

The FSA Chairman also acknowledged that more problems lie within the retail market than the wholesale market. He suggested that this was because the sector offers complex products; there is an information asymmetry between providers and consumers; and there are low levels of competency for many consumers making the financial decisions in question.

He went on to reveal that:

"We have devoted increased resources and attention to tackling those underlying problems. It will be a long haul to solve them, but we are determined to do so."

Key figures contained in the annual report included that:

• Of the 74 targets the FSA set itself for 2006/07, 61 were delivered on schedule. Of the other thirteen, 8 were re-planned but still delivered in the 2006/07 financial year and 5 are still to be delivered.
• The number of approved firms fell from 28,969 to 28,281.
• The number of approved persons fell from 167,276 to 164,821.
• The Regulatory Decisions Committee (RDC) considered 17 new cases as opposed to 46 last year. Following the Enforcement Process Review there has been a number of changes to the composition and procedures of the RDC. One change is that authorisation cases are now dealt with at warning notice stage by the FSA Executive rather than by the RDC.
• The FSA's enforcement division closed 219 investigations during the year. Of these, 110 concluded with the use of powers (such as prohibition, financial penalties and variations of permissions) and 109 without the use of powers. Private warnings were issued in 10 of these 109 cases.
• The FSA levied GBP14.66 million in financial penalties during the year compared to GBP17.43 million last year.

The full text of the FSA Annual Report can be found in the Tax News Resources section.

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