Speaking at the Reuters Newsmakers conference in London last week, chief executive Hector Sants described the switch as a fundamental change.
He said the FSA will make “judgements on the judgements of senior management” and take action if they risk failing to meet statutory objectives.
Sants acknowledged that the approach will carry “significant risk” and judgments will not always be correct with hindsight.
He said: “The phrase principle-based has, I think, been misunderstood. To suggest that we can operate on principles alone is illusory, particularly because the policymaking framework does not allow it. Europe has a particular penchant for rules and, in any case, in a number of key areas, such as prudential, they are indeed necessary.
“Furthermore, the limitations of a pure principle-based regime have to be recognised. I continue to believe the majority of market participants are decent people but a principle-based approach does not work with individuals who have no principles.”
Financial Services Consumer Panel acting chairman Adam Phillips says the FSA’s new focus on outcomes is long overdue but must be coupled with adequate resources.
He says: “We have argued for some time that the FSA’s supervisors need to see how things look from the point of view of the customers dealing with firms, rather than relying on what firms tell the regulator.”
But City law firm CMS Cameron McKenna financial services partner Simon Morris says: “The FSA’s overriding objectives remain the same. What is new is a greater emphasis on prudence and on prove it rather than just show me but to bill this as a sea-change is overselling.”