RIP Principles based regulation?

I hope not - but fear that the FSA are now moving to an era of Enforcement Based Regulation. In recent years we have seen a steady increase in the number and size of Regulatory Fines.

Currently there are some 18,000 Firms classed by the FSA as Small Firms and regarded as low risk. Such Firms have managed to slip under the regulatory radar and avoid intensive supervision. Things are about to change.

The Treating Customers Fairly project has been moved within the FSA to "Business as usual" and 2/3 of Firms have now had their initial contact so far.

Over the last 6 months the FSA have recruited seasoned professionals with a detailed market knowledge in order to beef up their supervison teams. We can expect a shift form a reactive to a proactive approach going forwards.

The FSA have developed an updated risk profiling tool - GABRIEL returns should correspond with the appropriate return at Companies House. The FSA are keen that professional advisers including Accountants are mindful that the records must demonstrate the Financial Integrity of the business - including Capital Adequacy.

A new feature that the FSA have added in is "believability test" - does your GABRIEL return appear reasonable and sound? How does it compare with previous returns? Is there a skew to your product mix? Do you have any adverse comments appearing on the ELIXIR system run by the Life Offices?

So what you may ask? But an increasingly politicised FSA seems to be using high profile fines and prohibitions and a visible deterant. Yet Firms still get it wrong. Anecdotal evidence indicated that where historically a breach had taken place and reported to the FSA in good time no further action took place. Not any more.

Last year saw 80 Mortgage Brokers having their licences removed and the businesses closed down as a result of FSA intervention. The Mortgage Market Review has suggested that those Individuals engaged in advising or arranging Mortgages will become a controlled Function. Interestingly, it looks as if the FSA have already decided that is a good idea and are pressing ahead with developing an on line system for processing the 20,000 or so anticipated applicants. Some 5,000 of which are likely to be treated as non-routine and warranting further dtailed investigation.