In his speech to bankers at Mansion House yesterday, Callum McCarthy reviewed the present position of the financial services industry, and outlined some of the challenges it currently faces.
The chairman of the FSA started on a positive note, highlighting the profitability and international competitiveness of the financial services industry.
He also praised the wholesale financial services market as both efficient and competitive, but acknowledged obstacles in developing an efficient market based on the precept of caveat emptor in retail financial services.
He made it clear, however, that the FSAs regulatory interventions in the retail market are aimed at moving towards a more effective market as well as providing consumer protection.
After moving on to the costs imposed on the sector by regulation, McCarthy stated that early next year the FSAs cost of regulation study would enable it to focus on areas where the cost of the regime arent justified by the benefits.
He also urged the industry to come forward with views on such areas that would benefit from re-examination.
But it was just two issues that McCarthy predicted would shape the future of the financial services industry.
The first was one with the potential to affect all markets the threat of terrorist activity.
He warned against complacency, and challenged firms and exchanges to establish and test back-up arrangements in case of future attacks.
He also emphasised the role of the FSA, Bank of England and the Treasury in ensuring key participants in the financial market co-ordinate their responses through annual scenario exercises.
The second issue McCarthy discussed was the international challenges arising from the increased cross-border nature of the financial services sector.
He outlined the FSAs aim in this area, namely the adoption of risk-based regulation both in Europe and more generally.
McCarthy emphasised that a longer process, with better results, is justified in the end.
He also spoke of the challenge of regulating financial services firms that operate in many countries, and therefore subject to regulatory demands from a multiplicity of national regulators. He stressed that the FSA is against a pan-European single regulator, but is instead working to pool knowledge and develop common approaches for international companies.
McCarthy says: “There are many challenges which the financial services industry and the FSA face. I am confident that the industry will respond to these and other challenges with the same flexibility which it has always displayed, never more so than in the sometimes turbulent, always dynamic, two decades since the Big Bang.”