Thursday, 16 December 2010

FSA forces rise in probes by experts

The Financial Times reports that the FSA is forcing a record number of financial services companies to hire outside experts to investigate their inner workings, prompting complaints over the rising costs of regulation.

Since April it has ordered 90 reports (compared with 88 for the whole of 2009-10) under S166 of the Financial Services and Markets Act for “skilled persons reports” into areas such as capital adequacy, governance and complaint handling. The average cost of a report is now £128,000, while the most expensive was £4.4m.

“The most common issues are systems and controls, but governance-related reports are increasing rapidly” the FT reports. They quote Jon Pain, FSA managing director of supervision, “It is a direct reflection of our desire to be more intrusive. I don’t want to tie up huge swaths of supervisors doing detailed work on one firm….It’s effective because the firm pays for it rather than the costs being spread across all firms.”

Some experts point out that the Bank of England used to ask routinely for reports before the FSA’s creation, but bankers but others argue that it amounts to an abdication of responsibilities in favour of the “Big Four” accountants and the costs can be prohibitive for smaller firms. A ‘senior executive at a global bank’ is quoted as saying the intrusiveness was making London less attractive.

On the one hand, they would say that, on the other hand there is a delicate balance between ‘prudence’ and ‘over-regulation’ shifting banking business abroad. There certainly does seem to be an awful lot of bank bashing going on, not just in the UK but throughout the EU. See my post on CEBS, and Lord Turner's recent musings for example.

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