The Better Regulation Commission says the FSA’s move to principles could be scuppered by supplementary guidance and compliance measures brought in by firms to replace prescriptive rules.
BRC chairman Rick Hay-thornthwaite says unless the FSA and industry acts, one layer of prescription will be replaced by another. The BRC is an independent body set up by the Government to provide it with independent advice about new regulatory proposals and overall regulatory performance.
Haythornthwaite says this is also an issue in other sectors, such as health and safety, but it is more acute in financial services due to the large flow of funds and the litigious nature of the sector.
He also warns that promotion and communications material in financial services are driven more by the desire to eliminate risk rather than informing the customer, which conflicts with the goals of TCF.
Haythornthwaite says: “Principle based regulation is only meaningful if it has an impact on the marketplace and it is noticeable that no sooner does the FSA create space then lawyers and compliance departments come up with their own set of rules, preventing any positive impact.”
FSA spokesman Robin Gordon Walker says: “One key point about the move to principles is the change in mindset required by the industry to move away from a comfort zone of rules and avoid one set of prescriptive requirements being replaced by another.”