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FSA aims for early warning

Sants sets out proposals for the regulator to get proactive

The FSA has plans to scrutinise financial products at the design stage in an effort to intervene before problems arise and prevent consumer detriment.

In a speech at the Saïd Business School at Oxford University last Friday, FSA chief executive Hector Sants said the regulator will take a new approach to conduct regulation.

He said: “We will now seek to proactively intervene earlier in the product chain to anticipate consumer detriment and choke it off before it occurs. We will do this through using our integrated model of risk analysis and research to identify earlier sources of conduct risk, intervening further up the value chain and scrutinising products at the design stage.

“This approach will be combined with a greater willingness to test outcomes through mystery shopping and on-site visits, which should increase the probability of identifying issues before they gain industrywide momentum.”

In an interview over the weekend, Sants clarified that the FSA will not be kitemarking all products or saying nothing can be launched without FSA approval.

Speaking in Oxford, Sants said the FSA’s treating customers fairly initiative has not delivered benefits to consumers, adding that the new approach will improve the retail market.

He raised a number of possible actions that the FSA may include in its “cocktail of measures” to address the risks posed by large, too-big-to-fail companies, including higher capital and liquidity requirements.

He considered options for cost recovery in the event a firm goes bust, including recoveries made from the institutions themselves before they fail, as well as after the event through a levy on surviving firms.

Sants concluded that further analysis is needed in this area.

Sants, who is leaving the FSA, stressed that the regulator should not be judged on the quality of rules currently in place for firms, which he says are made internationally and in Europe.

He said: “May I note that the FSA’s role in policy-setting is essentially one of an influencer, not a decision-maker, as the bulk of the decisions are made in the international and European forums.

“The FSA’s effectiveness should thus primarily be judged on the effectiveness of our supervision and not the quality of the rules.”


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  1. Stable door, horse, bolted.

    What a joke of a regulator with a clown as Chief Exec.

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