In its Annual Report for 2007/8 the panel warned that many small firms view the RDR with “apprehension and uncertainty” which has a destabilising effect on the smaller firm marketplace.
The panel has also called for the regulator to provide better support for smaller firms trying to comply with principles based regulation.
The report states: “One of the biggest challenges facing smaller firms is that they operate in highly competitive marketplaces with tight margins. As a result the available time to absorb, what is perceived to be a complex regulatory approach, is very limited.
“Many smaller firms, without internal compliance departments, have no option but to incur high consultancy costs. Even then firms may still not have certainty that they are compliant until their businesses are reviewed by the FSA.”
The panel has voiced concerns over the mortgage intermediary market, saying the FSA must take “swift supervisory and enforcement action to improve standards”.
Outgoing chairman Mark Rothery says: “Many smaller firms still feel overwhelmed by the demands and uncertainties around the FSA’s move towards a more principles-based approach, by the application of the TCF initiative and by the potential impact of the Retail Distribution Review.
“However, the recent launch of the FSA’s Enhanced Small Firm Strategy, an initiative which the Panel warmly endorses, will provide a greater degree of communication, support for and interaction with smaller firms which, if successful, should prove beneficial to all.”