The FSA needs to up its interaction with smaller firms if it wants them to consistently meet its expectations, according to the Smaller Businesses Practitioner Panel.
The Panel says a reallocation of resources may be required in order to achieve this or compliance levels – and therefore consumer confidence – may remain relatively low.
It forms part of the Panel’s annual report for 2006/7, which also claims some small firms lack the “information and motivation” needed to satisfy the regulator’s targets.
The FSA announced in May only 41% of smaller firms met the ‘implementation’ stage of its treating customers fairly (TCF) principles.
However the Panel, which represents the interests and views of smaller financial services firms – around 93% of the Market - did praise the efforts of the Small Firms Division (SFD) in its bid to improve communication channels with the FSA..
Mark Rothery, chairman of the Panel, says: “2007 is proving to be another watershed year for regulation – the implementation of European directives, the FSA's transition to a more principles-based regime and the Retail Distribution Review – to name a few.
“It will be essential for smaller firms to actively engage with the FSA in order to continue to fulfill their regulatory obligations and to maintain contact with the changing regulatory environment.”
Rothery says reports of smaller firms’ apparent inability to meet the regulator’s expectations may be wide of the mark.
“By way of example, rather disappointingly only 41% of smaller firms met the deadline for implementing the FSA's TCF initiative,” he says.
“This does not mean that smaller firms are treating their customers unfairly. But it does suggest that smaller firms lack the information and motivation needed to drive forward the development of TCF processes within their firms.
“In the first instance, it is about the FSA ensuring that communications are clearer, better targeted and more accessible for smaller firms.
“Some recent progress has been made here, thanks in large part to the efforts of the Small Firms Division (SFD), of which the Panel has nothing but praise.
"The panel is eager to work with the FSA and see it maintain the momentum emanating from the SFD.
"In this respect the Panel strongly feels that the FSA needs to look carefully at its means of supervising smaller firms and would like to see a reallocation of resources in order to facilitate greater personal contact and interaction with smaller firms.
“This would help provide greater qualitative support for and collaboration with smaller firms, as well as helping to improve their general levels of compliance with a resultant boost in consumer confidence.
“The Panel believes that if the FSA is able to continue to raise its game in respect of communication with, and support for, smaller firms, then smaller firms will follow suit and more consistently meet the FSA's expectations of them."
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