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Principles-based regulation

The rules that govern mortgage and general insurance intermediaries are highly prescriptive and can be found in the FSA's handbook, which currently runs to thousands of pages. FSA wish to move away from highly prescriptive rules to a regulatory regime based on its 11 principles of business. FSA have already published a consultation paper aimed at stripping out a large number of the prescribed rules in the Conduct of Business Handbook.

Implications for intermediary firms

FSA hopes the move to principles will mean firms can move away from a regulatory regime based on process to one based on outcomes. The idea is that firms will have more flexibility to choose how to run their own businesses. Rather than relying on rules put down by the FSA to deliver the process, firms can deliver the process themselves, as long as they achieve the outcomes FSA want to see.

The move to a more principles-based regulatory regime will clearly have implications for intermediary firms, but also the FSA itself, consumers and AMI as your trade body. Clearly, FSA supervisors will need to be retrained to be able to interpret different firms' processes and determine whether they meet the FSA's outcomes or not.

AMI is concerned that a move to a more principles-based regulatory regime could leave a gap between the FSA's high-level principles and detailed rules required, for instance, by European Directives. We must be clear on what fills such a gap. FSA are keen on trade bodies producing 'Industry Guidance' to help firms in this area and has published a Discussion Paper outlining its proposed definition of 'Industry Guidance' and how bodies, such as AMI, who may wish to produce Guidance can seek 'FSA confirmation' for this guidance. The intention is that FSA will take into account whether a firm has used 'FSA confirmed' Industry Guidance to meet its regulatory responsibilities.

Read the Discussion Paper and further information

AMI has issued a formal response on behalf of its members. This is available in the 'Our response' section.

AMI is working with the regulator to enable us to provide members with the information they need to survive and thrive in this moving regulatory environment. Look out for further updates and details in our monthly newsletters and factsheets.

FSA Output on Priciples-based regulation

FSA have issued plenty of information on how it intends to deliver a more principles-based regulatory regime and output on what it sees as the benefits for the industry. These include:

Speech by Sir Callum McCarthy, FSA Chairman, to the Financial Services Skills Council Annual Conference, 31 October 2006 - what a move to a more principles-based regulatory regime will mean for the industry. View here

In a recent speech at the AMI seminar theatre at Mortgage Business Expo, Clive Briault outlined how FSA sees the mortgage intermediary sector benefiting from the move to a more principles-based regulatory regime. View here

Briault also spoke at an FSA TCF conference about how the regulator sees principles-based regulation making a difference to consumers. View here

John Tiner, Chief Executive at the FSA, gave a speech to the APCIMS annual conference on the European Union context of the FSA's move to a more principles-based regulatory regime. View here