FSA chief executive Hector Sants says significant investment into supervision of firms would be unlikely to reduce the costs of the Financial Services Compensation Scheme by a similar amount.
At an FSA conference on the Financial Conduct Authority this week, Sants explained many firms are currently visited once every four years, meaning some failings go undetected.
Sants said if the FCA was to visit firms on an annual basis, this would drive up the costs of the FCA by £200m compared with the £300m a year cost of FSCS claims, including Keydata, levied on smaller firms in the three years to March 2012.
Sants said: “The question is, if we invested an additional £200m a year into supervision, how much would the FSCS levy fall by? I suspect not by £200m.”
He also believes there are important trade-offs to be considered in the move to a more interventionist style of regulation under the FCA.
Sants argued the FCA needs to be more proactive, deliver effective competition, and be more accountable. But he said this mandate will mean the FCA needs more resources and more powers than the FSA.
He added: “An approach of early intervention will necessarily run the risk at times of reducing innovation and will certainly at times constrain individual freedom of choice.
“We all need to recognise the significance of this change and use the coming months to contribute to a debate as to whether this is the direction we wish to go. I hope I have laid out starkly the benefits and risks of a more interventionist regulatory stance and I invite society to decide whether this is a bargain it wishes to strike.”