Financial service regulation 'too costly'

Many financial services companies believe the cost of regulation is excessive and likely to increase, according to a survey released yesterday by the Financial Services Practioners’s panel.
The survey was conducted by NOP market research which received responses from 3,117 companies out of 6,507 polled. It found that for 58 per cent of small retail companies (those with fewer than 20 employees) the cost of regulation amounted to more than 10per cent of their overall costs.
Even among larger retail operators on the scale of Barclays and HSBC, 35 per cent of the respondents said compliance costs accounted for more than 10 per cent of total expenditure. The survey was canvassing opinions about Financial Services Authority regulation.
Jonathan Bloomer, group Chief Executive of Prudential, life assurer, who heads the practitioners' panel, said: "These frustrations show that the cost of compliance is having an effect on firms1 business and their willingness to go into new areas and new products or leading them to withdraw from some areas of the market."
He welcomed the FSA's decision to launch a joint project with the practitioners' panel next year to look at the impact and cost of regulation on smaller firms.
"There is a need for proper management accounting on this," said Roy Leighton, UK chairman of Calyon and deputy chairman of the panel. "The FSA fees are generally not a problem, it's the cost of compliance departments and the allocation of chief executives' time."
The cost of regulation has increased since the panel conducted its last survey two years ago and 49 per cent of respondents believed the cost would continue to
rise. One chief executive of an insurance company commented: "Costs to industry have been gigantic ... Costs have gone up hugely."
The companies surveyed were also sceptical about the benefits they were getting for their expenditure. "Given the sizeable sums they paid, the level of systems and personnel devoted to this area and the amount of senior management time devoted to dealing with the regulator, they felt that they saw little
in return from the FSA by way of expertise or engagement," the survey said.
Many companies said the FSA was too focused on consumer protection. John Tiner, FSA chief executive, said the regulator took the issue of costs very seriously. "We do not accept, however, that the FSA is disproportionately focused on consumer protection to the detriment of our other objectives," he said.
The practitioners' panel
was established in 1998 and includes senior figures from a cross-section of the financial services industry to provide a high-level body available for consultation on policy by the FSA.
The survey found most companies were keen to see a strong regulator. However, they believed the current regulatory system was harmful to the development of new products and services.
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