On 12 March 2010, Hector Sants, FSA Chief Executive, gave a speech entitled: “UK Financial Regulation: After the Crisis”. In the speech, Mr Sants formally launched the FSA’s new approach to conduct regulation, which is intended to be proactive and “outcomes-based”. Mr Sants’ view is that the FSA’s past “reactive” stance meant that it has acted too late in the lifecycle of financial products to identify problems early enough to prevent consumer detriment.

There are three elements to the new strategy:

1. Seeking to improve the long-term efficiency and fairness of the market.
   • A recent example of an FSA initiative intended for this purpose is the mortgage market review
2. Delivering intensive supervision of firms.
   • The FSA will be prepared to intervene earlier in the development of retail products to anticipate consumer detriment. It will make greater use of tactics such as mystery shopping and on-site visits.
3. Where failures occur, securing redress and compensation and achieving credible deterrence by enforcement action against firms and individuals.
   • On the issue of consumer redress, the FSA will be undertaking a review of the complaint-handling standards of all the major banking groups.

Mr Sants notes that the FSA was forced by the financial crisis to adopt a more proactive approach to prudential supervision. It intends to build on this in 2010/11 with further work, including conducting annual stress tests for all major financial institutions.

Mr Sants also lists a number of issues related to the financial crisis which he considers critical and where further work needs to done. In particular, he highlights three areas which he believes are not currently being adequately addressed or debated:

1. Culture and behaviour.
   • Should a regulator intervene to affect the culture of financial institutions? An example of recent regulatory work in this area is the focus on remuneration structures.
2. Investor/shareholder responsibility.
   • Should shareholders act as owners, with owners’ responsibilities, or simply as investors?
3. Level of return from banking activity.
   • Mr Sants calls for international work to address society’s unease with the perceived high return extracted by banks for their activities and the competition problems that would arise from any regulatory intervention.

http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2010/0312_hs.shtml