Outcomes focused regulation proposal threatens firms with more cost and enforcement action

The FSA’s proposal to a shift to outcomes focused regulation (OFR) could lead to more cost, regulation and enforcement action for firms warns Reed Smith, a law firm.

The proposal comes in the FSA’s new business plan for the period from April 1. It includes a proposed shift from principles based regulation (PBR) to OFR.

Reed Smith says the repercussions could be similar to those for the treating customers fairly initiative. The firm points out that as the TCF initiative was guidance, there was no consultation process involved and no cost benefit analysis carried out prior to its introduction.

Jacqui Hatfield, partner in the financial industries group at Reed Smith says: “My concern is that it is conceivable that the FSA plan to issue other “outcomes” guidance surrounding some or all of the other principles, which will lead to more regulation, cost and potential enforcement action for firms , without consultation or a cost benefit analysis. The FSA should provide more clarification regarding the shift to OFR to provide certainty in the market.

“Firms with retail end users have had to spend a lot of money in order to meet the TCF outcomes and to show that they have sufficient management information to evidence that they are meeting the outcomes. The FSA also indicate in the financial business plan that they will be taking enforcement action against those who have not met the TCF outcomes or been able to show that they have done so.”