Financial Services Authority sets out its strategic aims and priorities

• the Authoritys strategic aims;
  

• how priorities have been set in line with those aims;
  

• how performance is to be measured;
  

• the Authoritys budget for 2002/03.

Howard Davies, Chairman of the FSA, said:

"This is the first comprehensive manifestation of the radical new approach we plan to take, including an assessment of the choices we must make in terms of where we concentrate our resources.

This involves setting a balance between four types of activity - regular supervision of firms and markets, responding to developments in the industry and the external environment, consumer-facing work and the maintenance and renewal of the regulatory regime itself. The balance we propose for the coming year involves some cutback in routine activity, offset by increases in our responsive work, our direct-to-consumer efforts and in work designed to reform and improve the regime. We hope that the overall balance of effort we propose will be seen as a reasonable judgement by the industry and consumers.

This translates into a budget which, taking into account the new responsibilities which we assumed last December, is only marginally higher in real terms, although we are proposing an additional targeted increase to fund an overhaul of insurance regulation and enhanced regular supervision of insurance companies. This would be met by higher regulatory fees from the insurance sector."

Strategic aims and outcomes

Carol Sergeant, Managing Director for Risk Assessment at the FSA, said:

"The Plan and Budget highlights the Strategic Aims which will provide the focus for how we will pursue our statutory objectives. The strategic outcomes describe what we are trying to achieve over the next three years and provide a clear basis for assessing our performance."

The Strategic Aims are:

• Consumers- Consumers are better able to make informed choices and achieve fair deals in their financial dealings.

• Firms - Regulated firms and their senior management understand and meet their regulatory obligations.

• Markets - Consumers and other participants have confidence that markets are efficient, orderly and clean.

• Regulatory Regime - An appropriate, proportionate and effective regulatory regime is established in which consumers, firms and other FSA stakeholders have confidence.

Examples of strategic outcomes the FSA expects to have made good progress towards by 2005 include:

• Consumers demand high standards and suitable financial products and take more responsibility for their financial affairs;

• Firms and their senior management behave with integrity and treat their customers fairly including tailoring their products, selling practices, advice and training to deliver suitable products;

• Markets operate in an efficient, orderly and clean manner taking into account structural change, product development and increasing internationalisation;

• Stakeholders are confident that the FSA exercises its wide-ranging powers fairly and firmly, in a manner consistent with the principles of good regulation.

Cost-effective regulation

The budget for the FSAs mainstream regulatory activities (the control total) in 2002/03 is 180.5 million. This will be the first full year period for the FSA operating its full responsibilities. As a result, it will include for the first time the full year cost effect of the wider and deeper responsibilities the FSA took on from 1 December 2001. The wider responsibilities include the direct regulation of the Society of Lloyds, managing agents at Lloyds and professional services firms previously regulated by the Recognised Professional Bodies. The deeper responsibilities include consumer awareness and combating market abuse and financial crime.

Paul Boyle, FSA Chief Operating Officer, said:

"We estimate the full year incremental cost of the additional responsibilities assumed from last December will be about 9m, including associated overheads. The effect on current fee payers will be offset by the fact that we will have a wider base of fee payers from which we can raise fees. Those organisations that came within our scope for the first time from December will meet the costs of the wider responsibilities and their fair share of our other costs.

Excluding our additional responsibilities and the additional costs for insurance regulation, our budget is 2.9% higher than 2001/02 and only 8.5% higher than the budget for 1998/99 which was the first year in which we started to regulate on behalf of our predecessor bodies. This represents a small reduction in real terms over four years. The vast majority of our costs are employment costs. Salaries in the markets in which we compete for staff have risen by substantially more than inflation in the last four years; we estimate that had our total costs increased in line with salaries then our budget for 2002/03 would be around 20 million more than our proposals."

Notes for editors

1. The FSA's Plan and Budget 2002/03 is available on the FSA's Website www.fsa.gov.uk.

2. Also published today and available on the Website are:

   • Consultation Paper125 Fees 2000/03 which sets out the FSAs fee proposals for the firms it regulates directly.

   • The FSAs approach to performance evaluation which provides details of the FSAs approach to creating a framework against which to measure its performance against the Strategic Aims and outcomes set out in the Plan and Budget 2002/03.

3. Financial Risk Outlook 2002 was published yesterday (30 January). This looks broadly at the risks related to financial services and the wider environment in which they operate which may impact on the FSAs ability to meet its statutory objectives.

4. Further details about aspects of the FSA's work as described in the Plan and Budget 2002/03 can be found in FSA Press Notices 010/2002 and 012/2002 issued earlier this month.

5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.

6. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.