No signs of efficiency in FSA budget

Chris Hannant

So we now have the FSA proposals for fees for 2012/13. I am sure it is a surprise to no one that they have risen but I am not sure it was widely expected to rise by 15 per cent.

There are plausible reasons for some increase. The value of fines collected is down, the Government has transferred responsibility for debt advice to the FSA without the relevant funding and the FSA faces the significant upheaval and associated cost of dividing itself into two organisations. There is also a welcome rebalancing of the costs towards those who pose the most risk and away from the advice professions.

However, there is no sign of the efficiency savings the Government expects to wring from Whitehall departments.

The publication of the FSA’s consultation, coinciding with the Financial Services Bill, highlights one of the glaring issues with the regulator – the lack of accountability. Although there is a consultative process on FSA fees, there is no doubt that the FSA will get the money it wants. It does not have to undergo any rigorous scrutiny of whether it really needs that much money. There is no team of Treasury hawks crawling over each line of expenditure, ensuring tax-payers (or in this case regulated firms and hence customers) get value for money.

The restructuring at the FSA prompts an interesting comparison with another big public body undergoing massive organisational change. It too is hungry for resources and plays an essential role in our society. The NHS is a much loved and respected institution and has a strong claim on Government resources. Yet this has not saved it from rigorous scrutiny from the Treasury. It will make do with an increase in its budget of a small fraction above inflation, so the Government can say it has increased the funding for the NHS in real terms. I do not want to make comparisons about the value of the FSA or the NHS. Rather, I want to highlight that the latter, with the goodwill and support of those footing the bill (taxpayers), being subject to an effective process of scrutiny of what it spends, is deemed to only be worth a just above inflation increase. The FSA can seemingly write itself a blank cheque for a 15 per cent rise.

There is no real scrutiny or accountability. It is all well and good having statutory objectives but they are meaningless unless there is real external challenge. Fortunately, we have an opportunity to address this problem.

The Financial Services Bill provides a chance to get this right with the Financial Conduct Authority and the Prudential Regulation Authority. In theory, the FSA operates under a framework with checks and balances. In practice, it has pretty much done as it pleases.

Looking ahead, oversight for the FCA and PRA from the National Audit Office and the public accounts committee is welcome but it will require real engagement from these bodies as well as Parliament.

More important, the Government should not wash its hands of financial regulation, seeing it as a problem that is solved by the bill.

Chris Hannant is policy director at Aifa