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FSA/PN110/2006
1 November 2006

The Financial Services Authority today set out plans to encourage greater use of Industry Guidance as it moves towards a more principles-based approach to regulation.

Industry Guidance includes Codes of Practice and similar Statements generated by trade associations and professional bodies to help their members understand and follow good practice in meeting regulatory requirments.

A Discussion Paper sets out the FSA's thinking on the role of Industry Guidance in a more principles-based regulatory structure. The paper:

• recognises that industry guidance is not new, but already exists in different parts of the regulatory system;
• makes clear that industry guidance will supplement rules not replace them;
• sets out a standard process for FSA to recognise industry guidance;
• makes clear the standards that will be applied in recognising such guidance; and
• confirms that the FSA will not take action against a firm which has complied with recognised guidance covering the issue concerned.

The paper is the outcome of a review the FSA carried out this year to see how it can work with industry codes in solving market failures and defining practices which are consistent with an FSA Rule Book modelled more on high-level principles and rules.

FSA General Counsel Andrew Whittaker said:

"These proposals will contribute towards more principles-based regulation by allowing us to focus on the main principles to be achieved, rather than the detail of how to comply with them. They will give firms guidance on ways of complying with FSA principles and rules, but in a way that should stimulate flexibility and innovation in meeting higher level standards."

The FSA is looking for comments and feedback to the Discussion Paper by 31 January 2007.

Notes for editors

1. DP06/05: 'FSA confirmation of Industry Guidance' is available on the FSA Website.
2. Industry Guidance is defined in the DP 06/05 as: "Information created, developed and freely issued by a person or body, other than the FSA, which is intended to provide guidance from the body concerned to the industry about the provisions of our Handbook." The FSA considers Industry Guidance to be information that is developed by the industry, not the FSA, and is to assist firms, their staff and their advisors in understanding how they can meet FSA requirements.
3. The standardised wording the FSA proposes to accompany Industry Guidance is: "The FSA has reviewed this Industry Guidance and has confirmed that it will take it into account when exercising its regulatory functions. This Industry Guidance is not mandatory and is not FSA Guidance. This FSA view cannot affect the rights of third parties."
4. The FSA regulates the financial services industry and has four objectives under FSMA: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.