The National Audit Office review of the FSA looks set to recommend a radical shake-up of the way financial services is governed and regulated, say sources close to its inquiry.
Sources suggest that the NAO will report that the relationship between the FSA and the Office of Fair Trading is not working in areas such as economic competitiveness and price regulation, with issues such as commission slipping through the gap between the bodies.
The report could recommend structural changes or amendments to statutory duties as a way of addressing the perceived problem.
The review is thought to be examining the distribution landscape closely and how it interacts with the patchwork of regulatory bodies, including the role of advisers and the future of generic advice, and could make dramatic recommendations, say sources.
The review is also examining problems caused by responsibility for financial capability lying with the FSA such as lack of resources and the issue of industry subsidy and could recommend that this passes elsewhere.
The Treasury invited the NAO to review the FSA in June, with a remit to examine its internal performance management, links with other regulatory bodies, international influence and financial capability.
It will lay its report before Parliament in April followed by scrutiny from either the Treasury select committee or the public accounts committee, as is usually the case with NAO reports.
A spokesman says the NAO cannot comment on a report before it is laid before Parliament.
Personal Finance Society public affairs director John Ellis says: “An independent examination of the relationship between the OFT and the FSA around competition is long overdue.”
Aifa deputy director gen-eral Fay Goddard says: “We want the NAO to address the constant tide of FSA regul-atory changes hitting advis-ers, the lack of accountability and cost benefit analysis and the way that it interprets European directives.”