The Financial Conduct Authority and Prudential Regulation Authority will need to demonstrate in future that they are achieving value for money for financial service industry customers, the National Audit Office said.
The combined forecast cost of the two regulators is £664m in 2013/14, 24 per cent higher than the cost of the Financial Services Authority in 2012/13.
The regulators attribute this increase to additional front-line staff, additional costs to replace information technology and new IT, support and premises costs.
The costs, however, are set in the context of the potential benefits of the regulators more effectively reducing harm to consumers and limiting future taxpayer liabilities from financial crises, the NAO said.
The regulators aim to achieve more judgement-based, forward-looking regulation, through a combination of structural changes and actions to change the culture and behaviour of regulatory staff.
The NAO found “encouraging signs” that these changing approaches are “bedding down”.
Both regulators, however, face challenges in ensuring they have the right staff capacity as the “range and depth of skills” required by the regulators has increased with their expanded remits.
The NAO said more than a third of staff at the FCA have less than two years’ service at the regulator and its predecessor, the FSA.
“There is a risk that this may begin to undermine industry confidence in the regulators and poses a risk that knowledge within the organization will be lost”, the NAO said.
Co-ordinating work between the two regulators will be an ongoing and complex challenge. There is currently a good working-level relationship and communication between staff at both regulators. However, this will need to be built on to manage potential conflict between prudential and conduct objectives.
Amyas Morse, head of the NAO, said: “These are still early days for the new regulators, and there are encouraging signs that their new approaches are gaining traction.
“Attracting and retaining the right staff are vital to keeping this progress on track, and so both regulators need to tackle this issue. In future, we will expect the FCA and PRA to demonstrate that their increased costs are achieving value for consumers and the taxpayer.”
