National Audit Office Publishes Review Of Financial Services Authority

by Robin Pilgrim, LawAndTax-News.com, London

01 May 2007

The UK's National Audit Office (NAO) on Monday published a review of the performance of the Financial Services Authority (FSA).

The review covered five areas, namely: performance management; working with other regulators; international influence and representation; financial crime; and financial capability. It was conducted at the invitation of the Treasury, under section 12 of the Financial Services and Markets Act 2000.

The National Audit Office consulted a wide range of the FSA’s stakeholders. While concerns were expressed – for example, on the number of rules in the FSA Handbook, the implementation of principles-based regulation on the ground and the need for the FSA’s approach to reflect the actual experience of consumers – the majority of stakeholders had broadly positive views on the FSA’s performance in the five areas examined.

Key findings of the NAO review included:

• On performance management - The FSA has developed and is developing useful tools to manage its performance in meeting its objectives in an economic and efficient way. It must now look to streamline and integrate these tools and also get a better grip on information on the cost of its activities.
• On working with other UK regulators - The FSA has good and improving working relationships with other UK regulators. It should focus on working collaboratively with the Office of Fair Trading to promote strengths and avoid duplications in the promotion of competition and consumer protection.
• On influencing and representation internationally - The FSA commits significant senior level resource to influencing international developments, where it is generally effective, but could sharpen up its communication to stakeholders about its strategy and contribution.
• On financial crime - Combating financial crime has tended to receive less attention than other elements of the FSA’s responsibilities. But the FSA has recently restructured and enhanced its efforts. To make a success of this, it needs to review the assessments it makes of firms and the skills and training of its supervision teams.
• On financial capability - The FSA is a world leader in its work on financial capability. It should build on this by focusing on the costs of low financial capability, setting measurable goals for its impact on consumers and developing with stakeholders its medium term strategy for financial capability beyond 2011.

The NAO observed that:

"Five years after its creation the Financial Services Authority, the independent body regulating the financial services industry in the UK, is a well-established regulator with an impressive set of processes and structures to help tackle high-risk organisations and markets. It now needs to streamline and fully integrate these processes and structures, and increase its focus on demonstrating the actual outcomes it achieves for consumers and markets."

Responding yesterday to the publication of the report, the FSA announced that:

"We welcome the NAO's constructive and helpful report. We are pleased the NAO supports our developing approach to risk-based and principles-based regulation, recognising the progress we have made since we were established in 2001. It also identifies us as a leading regulator, and respected as a world leader in financial capability."

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