Regulation is required but only where it does not impose an "unnecessary burden" to retail financial services, Callum McCarthy, chairman of the FSA, said last night.
In his annual Mansion House speech to the City, McCarthy said: “Where it is within the FSA’s discretion to do so, we continue to be concerned to reduce regulation where its existence is not matched by its benefits”.
He said the FSA was "acutely aware" of the costs imposed on the sector by regulation and would be carrying out a cost of regulation study early next year.
In particular, McCarthy referred to the FSA’s suggestions for a more “principles-based approach” rather than prescriptive requirements in the areas of individual authorisation, training and competence and anti-money laundering.
But he also stated there were “enormous advantages” for a market having rules, particularly the retail market.
“There is a correspondingly greater requirement for regulatory intervention in the retail compared to the wholesale market", says McCarthy.
This, he claimed, is because there is often a disparity between the knowledge of the adviser and of the customer, whereas customers in the wholesale financial services markets are “for the most part informed and competent”.
McCarthy recognised the FSA’s aim is to promote an efficient market for financial services in the retail market but it must also uphold its statutory duty of consumer protection.
“We as a regulator are conscious of the need for regulation to be confined to actions which the market will not provide itself; and to be confined to actions which are cost effective,” he added.
One way McCarthy would like to achieve this is by adopting an analysis of the costs and benefits of new proposals.
He pointed out this cannot be rushed if it is done properly and incorporating new initiatives will therefore take longer.
He referred to the Market in Financial Instruments Directive (MiFID) which has been rapidly introduced, not subjected to an analysis of costs and benefits, and whose implementation costs he admits are substantial.
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An added tier of asset management can of course deliver additional benefits for certain investors, writes Graham Bentley - just be sure you can justify it to the regulator and, especially, the client