18% rise is cost of FSA 'deterrent'

25 March 2010 | By Nicole Blackmore

The FSA’s budget for 2010/11 has risen by 18.3 per cent to £491m, up from £415m last year, amid warnings from chief executive Hector Sants that a more intrusive regulator is going to cost more.

The FSA Business Plan 2010/11, published last week, shows staff costs have leapt by 16 per cent from £299m to £347m this year, with the regulator planning to take on an additional 460 staff to carry out its enhanced supervisory work and implement Solvency II. This will bring staffing levels to around 3,700.

The FSA says there are no funds allocated for general pay increases and the majority of staff will not receive a pay rise in 2010/11. However,
the board has agreed to allocate a budget equal to 1.5 per cent of the total salary bill to “address significant pay anomalies”.

The annual funding requirement has risen to £455m, up by 10 per cent from £414m in the previous year. But the FSA says it anticipates an £11m surplus from 2009/10, which it will use to reduce the funding requirement this year.

The business plan sets out the FSA’s main focus for the coming year, which includes “effective supervision backed by credible deterrence in enforcement” and embedding organisational and cultural change needed to implement intensive supervision. It will also continue the policy reform programme driven by the Turner review and promote financial stability if the Financial Services Bill is enacted.

Sants says: “This proactive approach to supervision requires significantly more people than the old reactive model and those individuals must be of a higher quality and supported by more sophisticated systems. If society wants a more proactive approach, it must accept that it will have a larger and more expensive regulator.”

Pinsent Masons partner in the financial services team Tim Dolan, who formerly worked in the FSA’s enforcement division, says: “The FSA’s change in approach has direct implications for all firms which are authorised by the FSA. They have to be prepared for the FSA to be more difficult and more demanding.”

Churchouse Financial Planning director Keith Churchouse says: “I find it strange that Sants seems to be banging the drum now he is standing down. It is potentially because the FSA has not ach ieved what he wanted it to when he took it over. That then raises the question as to whether it was an issue of funding or leadership.

“It is clear that financial services is going to go through a transitional period over the course of the next three years and that is clearly going to need a bigger budget. So it is not surprising that they are going to want and need more money, I just think that it is a strange approach.”

Yellowtail Financial Planning managing director Dennis Hall says: “I think they have not really used the money they have had in the past effectively so how can they justify this budget increase?”

FSA business plan
2010/11 - key objectives

● Deliver effective, on-the-ground, intensive supervision, supported by its credible deterrence philosophy. This includes a change from light touch, principles-based regulation, to proactive, outcomesfocused regulation.
● Embed and implement the cultural and organisational change that underpins the intensive supervisory agenda. This includes increasing the
quality and quantity of FSA staff and equipping supervisors to make ’on-the-spot judgements’.
● Carry out banking regulatory reform, while also working to achieve globally agreed standards for banking regulations.
● Continue to deliver the wider policy agenda primarily mandated by the EU, in particular Solvency II.
● Play its role in delivering financial stability, including taking into account any changes to its scope of responsibilities arising from the Financial Services Bill.

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