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The report says the FSA’s “lack of accountability” is nurturing a “sense of disengagement and growing disillusionment within the financial services industry”. The think tank fears the FSA is vulnerable to political influence and operates as an increasingly defensive and risk-averse organisation which contributes to a “culture of prescriptive and increasingly complex regulation”.
The report is based on research last year by a team of volunteers including senior investment bankers, lawyers, fund managers and former regulators. It is particularly critical about FSA staff, except the most senior. It accuses them of being “inward-looking, risk-averse and demoralised” and claims staff lack commercial sense and often have no knowledge of the sectors they regulate.
The study echoes criticisms in a report by the FSA Practitioner Panel, which accused the regulator of operating with a “Civil Service mentality” and also criticised the quality of its staff
The CPS says the FSA should focus on the indirect costs of regulation, remove many compliance burdens and apply a “robust, consistent and proportionate investigation and enforcement regime, concentrating on those senior management failures that put consumers and the market at risk”. It suggests removing its responsibility to educate consumers and assign responsibility for policing financial crime to the criminal prosecution authorities.