FSA Annual Report 2006/07 - Better Regulation Ltd

Section six – Appendices
Appendix 2
119
implement EU directives, offer us an opportunity to introduce changes with
the least additional disruption and cost. In changing these parts of the
Handbook we have aimed, where possible, to move away from detailed,
process-orientated rules and have relied more on high-level, outcome-focused
principles and rules. As with all changes we make to our Handbook, we will
consult on proposals before making any changes and all proposed changes
will be subject to rigorous cost-benefit analysis. We expect principles-based
regulation to achieve benefits for consumers by encouraging the senior
management of firms to focus on the Principles and by fostering a more
innovative and competitive financial services industry.
Industry guidance
To help firms determine how best to meet our expectations under more
principles-based regulation we see a greater role for sector-specific guidance
and support provided by industry associations, professional bodies or groups
of firms. We will respond more fully to the feedback we received on our
Discussion Paper in the third quarter of 2007, but where guidance has an
impact on consumers an important factor in deciding whether we confirm
the guidance will be how industry bodies have sought and considered the
views of consumer representatives in the development of their guidance.
Conduct of business simplification
We are making a series of changes to simplify our conduct of business regime
for investment business and, at the same time, to implement the Markets in
Financial Instruments Directive. Our new rules will be consistent with our
move towards a more principles-based approach to regulation. Rather than
reducing the level of protection for consumers this approach should lead to a
greater alignment of business and regulatory objectives, which in turn should
benefit consumers by creating a more competitive and innovative market
place. We will carry out a post-implementation review of the new Conduct of
Business sourcebook to assess whether the desired outcomes for both
consumers and firms are being achieved in practice.
Most respondents to the consultation agreed with our proposal to remove
the excessive charges rule, which we have never used or taken enforcement
action under. Firms should, however, have regard to the new requirement to
act honestly, fairly and professionally in accordance with the client’s best
interests.
It was not our intention to make any policy changes in the conduct of
business rules applying to with-profits, simply to improve their wording and
move to higher-level rules in some areas where this would not affect, or
would improve, outcomes for consumers. We have sought to make this
clearer in the rules we have now made.
Costs and benefits of regulation
Deloitte published their report on the costs of regulation in June 2006. Most of
the rules identified as imposing the highest incremental costs were in the retail
investment and pensions advice sector and related to point-of-sale disclosure.
We are using the results of the Deloitte study to assess the benefits of some of
the regulatory requirements that generate the highest incremental costs. The
benefits of regulation flow from improvements in market outcomes that would