FSA’s Sants warns on European ‘tick box’ regulation risk

Mr Sants said that from 2013, when the new Financial Conduct Authority (FCA) and Prudential Regulatory Authority (PRA) take over from the FSA, the UK will have a more judgement-based approach.

But European rules continue to focus on a “tick box” approach based on fulfiling data-based requirements rather than making judgements about the stability of the financial system, he said in a speech to the British Bankers’ Association.

“If there is a risk of tick box prudential regulation, it will come from Europe,” he said.

“The issue here is that the European approach to regulation is not only to avoid disorderly failure, but also seeks to ensure common standards across Europe. This seems to be creating a ‘bias to data’ and runs the risk of being at variance with the necessity of having customised risk assessments of firms.”

Mr Sants said that “regulators were seeking to avoid second guessing management” under the previous regime of the FSA.

“A focus on ensuring firms had the right systems and controls and right management information clearly led to a proliferation of requests and to the supervisor being swamped by data and information,” he said.

“The focus was not on the outcomes experienced by consumers but on the firm’s controls.”

Mr Sants has recently made several statements pledging to deliver a more interventionist approach under the FCA, including actively policing financial product design.