Principles of good regulation
In pursuing our functions under the Act, we are required to have regard to additional matters that we refer to as 'principles of good regulation'. These are:
Efficiency and economy
The need to use our resources in the most efficient and economic way:
The non-executive committee of our Board is required, among other things, to oversee our allocation of resources and to report to the Treasury every year. The Treasury is able to commission value-for-money reviews of our operations. These are important controls over our efficiency and economy.
Role of management
The responsibilities of those who manage the affairs of authorised persons:
A firm’s senior management is responsible for its activities and for ensuring that its business complies with regulatory requirements. This principle is designed to guard against unnecessary intrusion by the regulator into firms’ business and requires us to hold senior management responsible for risk management and controls within firms. Accordingly, firms must take reasonable care to make it clear who has what responsibility and to ensure that the affairs of the firm can be adequately monitored and controlled.
Proportionality
The restrictions we impose on the industry must be proportionate to the benefits that are expected to result from those restrictions:
In making judgements in this area, we take into account the costs to firms and consumers. One of the main techniques we use is cost benefit analysis of proposed regulatory requirements. This approach is shown, in particular, in the different regulatory requirements we apply to wholesale and retail markets.
Innovation
The desirability of facilitating innovation in connection with regulated activities:
This involves, for example allowing scope for different means of compliance so as not to unduly restict market participants from launching new financial products and services.
International character
The international character of financial services and markets and the desirability of maintaining the competitive position of the UK:
We take into account the international aspects of much financial business and the competitive position of the UK. This involves co-operating with overseas regulators, both to agree international standards and to monitor global firms and markets effectively.
Competition
The need to minimise the adverse effects on competition that may arise from our activities and the desirability of facilitating competition between the firms we regulate:
These two principles cover avoiding unnecessary regulatory barriers to entry or business expansion. Competition and innovation considerations play a key role in our cost-benefit analysis work. Under the Financial Services and Markets Act, the Treasury, the Office of Fair Trading and the Competition Commission all have a role to play in reviewing the impact of our rules and practices on competition.