FSA's U-turn on risk policy rules angers City firms
The City on Friday reacted angrily to a late policy U-turn by the Financial Services Authority which has left banks and fund management firms with millions of pounds in unnecessary costs.
A year ago the watchdog gave the insurance, credit and fund management industries until December 31 this year to tighten up their internal risk management systems or risk sanctions.
But in a move that stunned many firms, the FSA decided to scrap its deadline for banks and fund managers after it realised that looming European Union-inspired regulations would "supercede" some of its own requirements. Insurance firms are unaffected by the EU directives.
The sharp criticism comes at a sensitive time for the City regulator. Appeals against its regulatory decisions have hit record highs and it is trying to broker deals with the fund management industry over commission transparency and compensation over the split-cap investment trusts scandal.
"This has left us gobsmacked," said one senior City investment figure. "We have spent millions to ensure we meet the December deadline and now it has been pulled at three months' notice. The FSA has not even bothered writing to individual firms or apologising."
One compliance director at an asset management firm said: "We have been driven by the deadline and been forced to hire expensive external consultants. There is now a policy vacuum. Do we wait for Europe or try and second guess what might come? This hasn't been handled well"
Last October the FSA released policy statement CP142 after two years of consultation. A large part of it was intended to "help firms reduce the frequency and impact of operational risk management failures".The rest concerned capital adequacy requirements.
The watchdog said such risk management failures - resulting from inadequate IT systems or poor internal management processes - could damage confidence in the financial system, hit consumers or leave firms "more susceptible to financial crime".
It estimated that 2,500 member firms could incur implementation costs ranging from �5,000 up to �2m each, depending on the size and complexity of their business, although some firms would not incur such costs.
But in a recent letter to industry associations, FSA director Michael Folger said it was now clear two EU directives - the Capital Requirements Directive and the Markets in Financial Instruments Directive - could be implemented before the summer of 2006, rendering the regulator's requirements on operation risk management obsolete.
The FSA on Friday insisted firms had not "wasted" their time and money. An official said: "We expect them to move towards implementation of the proposals anyway."
Patrick Fell of PricewaterhouseCoopers, which has been advising firms how to comply with CP142, said the FSA's U-turn had "come as a surprise for many firms which had been investing significant time and money to meet the deadline".
But he said he did not expect the delay to affect the way the FSA checked risk management arrangements.
Mr Fell said the watchdog's move highlighted "the extent to which policy was being driven at a European level".
|
