It needs regulation but not regulation which is a drag on innovation or which damages competition and the industry. The recent Treasury review dismisses the views that the financial regime is starting to damage international competitiveness and has cut domestic competition. The principal role of the FSA needs to be to foster, with the industry, a healthy, competitive and innovative industry. It is no accident that the two main growth areas have been hedge funds and private equity, neither of which is regulated. The industry accepts the need for regulation which should be more flexible and adaptive than relying on statute or case law and it does not want further massive and costly reorganisation. Its biggest complaints are about the quality of the regulators and that their cultural approach is one of looking for minor infringements as a measure of regulatory achievement. We may be stuck with over-prescriptive regulation for the retail industry but we need a lighter-touch regime based on principles expressed as “10 commandments”, as distinct from ever more prescriptive rules, micro-managed supervision and combative enforcement and supported by targeted guidance for each sector on how the regulator expects the principles to be interpreted. There are obvious differences as to what is needed, respectively, for institutional participants, high-net-worth or businesses and retail businesses. In institutional markets, regulation should be confined, essentially, to prudential regulation to ward off and manage systemic risk. There is much to be said for following the Australian model and having a separate unit for institutional regulation and separating high-net-worth and retail regulation. The high-net-worth clients of private banks and private stockbrokers are essentially sophisticated individuals and do not need or want long-winded prescriptive regime and form-filling. The FSA has interpreted its public awareness objective as provision of financial education. I believe this should be the responsibility of the Department for Education and Science and the FSA taking on this has served largely as a copout for the DES getting a move on to install financial education in our schools. The previous regulatory regime took the view there was an inherent conflict between educating consumers and regulating the industry. A healthy and competitive industry needs responsible and entrepreneurial senior management where consumers are served by market forces and competitive brands with businesses keen to enhance their reputations. The “zero-failure” regime imposed on senior management is resulting in many of the best people being unwilling to put themselves forward and in costly protective employment contracts. The FSA has increased in size dramatically and is now over twice the size of the Treasury and three times bigger than Ofcom. With general insurance and mortgage regulation, the number of firms under supervision will increase from 12,000 to 30,000. The FSA is costing £200m a year directly but the costs to the industry and ultimately to consumers,are running into billions which damages overall competitiveness. It is also apparent, and imp-licit in the Financial Services and Markets Act, that the FSA dances too much to the tune of the Treasury. It should be independent of any Government department and answerable directly to a properly empowered board elected by its stakeholders and to Parliament via a designated select committee of both houses. Above all, what is needed is a change of culture. The regulator should be proportionate and balance the interests of the industry with the protection of customers. It should listen to and act on the views of its industry partners in transparent and constructive dialogue about market realities and consumer needs, about regulatory priorities and about the FSA’s interpretation of its objectives. The failure by the industry to address some unsatisfactory practices presented a strong argument for mortgage regulation but what we have is over-kill, likely to reduce the choices offered and the number of providers as well as adding major costs to the industry. General insurance regulation by the FSA is adding massive costs and bureaucracy to little benefit for consumers. This is largely the result of the intrusion of EU financial regulation. The European Financial Services action plan has 42 targets and the FSA estimates 70 per cent of its time and new regulation derive from the EU. What is coming from the EU is overly prescriptive and bureaucratic and damaging to Britain’s international competitiveness. More than 20 new EU measures are expected to be imposed by 2006 and now it looks that the EU is considering tearing up the Ucits directives for retail funds and starting all over again. What is urgently needed in Europe is a review of the many anti-competitive practices and customs which are limiting a real single market. A review is also needed on the extent to which common directives are implemented differently in different countries. The EU is wallowing in initiatives but is failing to address major distortions to competition and competitive abuses. The wrong message about regulation has resulted in over 25 per cent of the population believing that if a product is regulated they can never lose. The Financial Ombudsman Service has served to encourage a blame culture mentality and to encourage complaints which are not justified. Investors cannot be safeguarded against market risks. Ultimately, citizens have to accept responsibility for their own decisions. Something like an ombudsman service is useful and necessary but a better balance might be achieved and a lot of time saved if complai-nants were required to make a modest down-payment deposit on bringing a case which would be forfeit if they lose their case. Consumers should expect protection against misleading advertisements or selling documents, fraud, negligence, misrepresentation, breach of contract, concealed charges and misleading information, but not against their own negligence in failing to bother to understand the products they are buying or the inherent risks of all forms of financial saving. The original and viable concept of regulation is about the regulator providing ground rules for proper conduct and fair play. Anyone working in the industry who acts with sound principles and moral integrity should find they are not in regulatory breach. This is not presently the case. We have a welter of prescriptive, costly and often unnecessary rules. The FSA is seen by the industry as having been captured by the consumer lobby, with its main role as consumer protection, as inter-preted by the political pressures of the day. If this persists, we will not have a successful and innovative financial services industry in the future.