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On Wednesday, the UK regulator, the Financial Services Authority (FSA), released its annual International Regulatory Outlook containing strong encouragement to firms to get ready for CRD and MiFID plus the FSA's commitment to the EU's Financial Services Action Plan (FSAP).
In the report, the FSA announced its support of the FSAP, a re-emphasis on its intention to apply principles-based regulation, and a strong message to encourage firms to have their systems and processes in place to meet the demands of the CRD (the Capital Requirements Directive, the EU’s implementation of Basel II) and MiFID (the Markets in Financial Instruments Directive, the EU’s trading in investment instruments regulation), both of which will go live in the 12 months from January 1st 2007.
In summary the messages were:
- Do not underestimate the continuing challenge of implementing EU measures, in particular those of MiFID and CRD. Have the systems in place to meet the new requirements.
- Get involved in consultations at an early stage. This will ensure greater consistency across national borders and help to contain costs.
- Support the FSA in the adoption of 'better regulation' processes – ones that are risk-based and take account of market reality.
The FSA committed itself to applying the FSAP and to avoid inconsistency by, as far as possible, adopting a copy-out approach to transposing these directives into the UK's rule book. However it needed feed-back from the industry to identify whether additional regulation was needed and whether that would be appropriate, proportionate and effective. The FSA also committed to a principles-based approach to regulation and supervision and to "better regulation" disciplines, and would be working to promote this approach in all international regulatory forums.
The report quotes a recent speech by John Tiner, the FSA's Chief Executive: "Adoption of more rigorous disciplines around policy-making in Europe will improve the quality of regulation, ensuring that it is more evidence based, proportionate and attuned to market failure. Where we believe that principles would be the appropriate outcome we will press for these." The European Commission's decision not to introduce regulation in the area of clearing and settlement but, rather, to press the industry itself to devise a solution, is quoted as evidence of progress in this area.
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