FSA Annual Report 2006/07 - Better Regulation Ltd

Financ ial Ser v ices Author it y 

Annual Report 

2006/07 

Promoting efficient, orderly and fair markets 

Helping retail consumers achieve a fair deal 

Improving our business capability and effectiveness

Financial Services Authority 

Annual Report 


Our objectives are: 

market confidence: 

maintaining confidence in the financial system; 

public awareness: 

promoting public understanding of the financial system; 

consumer protection: 

securing the appropriate degree of protection for consumers; and 

the reduction of financial crime: 

reducing the extent to which it is possible for a business to 

be used for a purpose connected with financial crime.

2 


Annual Report 2006/07 

This report is made by the Financial Services Authority (FSA) under the Financial 

Services and Markets Act 2000 (FSMA). It is made to the Treasury and covers the period 

1 April 2006 to 31 March 2007. 

The report meets the following statutory requirements. 

Pursuant to paragraph 10 of Schedule 1 to FSMA, the report covers: 

• the discharge of the FSA’s functions under FSMA; 

• the extent to which, in the FSA’s opinion, the regulatory objectives under FSMA have 

been met; and 

• the FSA’s consideration of the matters mentioned in section 2(3) of FSMA (principles 

of good regulation). 

It also includes the report by the FSA’s non-executive committee under paragraph 4(6) of 

Schedule 1 to FSMA. 

The FSA’s audited accounts for the reporting year ending 31 March 2007 are included in 

Section five. 

Additional material on our performance in 2006/07, including high-level indicators, can be 

found on our website at www.fsa.gov.uk/Pages/Library/Corporate/Annual/Index.shtml. 

The Annual Report will be discussed at our Annual Public Meeting on 19 July 2007. 

Further details of our Annual Public Meeting can be found on our website: 

www.fsa.gov.uk/Pages/Doing/Events/events/apm.shtml 

© Financial Services Authority 2007 

25 The North Colonnade Canary Wharf London E14 5HS 

Telephone: +44 (0)20 7066 1000 Fax: +44 (0)20 7066 1099 

Website: www.fsa.gov.uk 

All rights reserved 

Photographs © James Winspear 2007



3 

Contents 

Chairman’s statement 6 

Chief Executive’s report 8 

Section one Promoting efficient, 15 

orderly and fair markets 

Section two Helping retail consumers 25 

achieve a fair deal 

Section three Improving our business 37 

capability and effectiveness 

Section four Financial review 45 

Section five The Board of the Financial Services Authority 54 

Report of the Directors 55 

Corporate governance statement and 

remuneration report 60 

Report of the independent auditors 

and financial statements 68 

Statement of the allocation of costs 95 

Section six 

Appendices – available on our website: 

www.fsa.gov.uk/Pages/Library/Corporate/Annual/Index.shtml

4 



KATHLEEN 

REEVES 

HR & 

Development 

MARTIN 

WALTON 

Finance and 

Planning 

CALLUM McCARTHY 

Chairman 

IAIN BROWN 

Company Secretary 

JOHN TINER 

Chief Executive Officer 

ROSEMARY HILARY 

Internal Audit 

VERENA ROSS 

Strategy & Risk 

JOHN MURRAY 

Communications 

ANDREW WHITTAKER 

General Counsel 

MARGARET COLE 

Enforcement 

DAVID KENMIR 

Regulatory Services 

CLIVE BRIAULT 

Retail Markets 

HECTOR SANTS 

Wholesale & Institutional Markets 

CROSS–FSA SECTOR LEADERS 

Auditing & Accounting – SALLY DEWAR Asset Management – DAN WATERS Banking – THOMAS HUERTAS Capital Markets – SALLY DEWAR Consumers – VERNON EVERITT 

Financial Crime – PHILIP ROBINSON Financial Stability – DAVID STRACHAN Insurance – SARAH WILSON Retail Intermediaries – STEPHEN BLAND 

GRAEME 

ASHLEY-FENN 

Contact Revenue 

& Information 

Management 

LESLEY 

TITCOMB 

Regulatory 

Transactions 

DARRYL 

SALMONS 

Information 

Systems 

PETER 

SODEN 

FSA Services 

DAVID 

STRACHAN 

Major Retail 

Groups 

SARAH 

WILSON 

Retail 

Firms 

STEPHEN 

BLAND 

Small 

Firms 

DAN 

WATERS 

Retail Policy 

VERNON 

EVERITT 

Retail 

Themes 

SALLY 

DEWAR 

Markets 

THOMAS 

HUERTAS 

Wholesale 

Firms 

MICHAEL 

FOLGER 

Wholesale & 

Prudential 

Policy 

PHILIP 

ROBINSON 

Financial 

Crime and 

Intelligence

6 

Chairman’s statement 

FSA Annual Report 2006/07 


Callum McCarthy, FSA Chairman 

2006/07 was, like other years, a busy year for the FSA. This reflected the 

final stages of some long standing pieces of work, including the 

implementation of the Markets in Financial Instruments Directive (which is 

likely to have quite profound effects on the European financial services 

industry) and of the Capital Requirements Directive (the most significant 

change for banks’ and others’ capital base for two decades). The year also 

marked important developments in work which will continue to be central to 

the FSA; our work on financial capability is a prime example of this. At the 

same time, we have started a process of far reaching changes in the way in 

which we run the FSA, designed to improve the quality of our output and the 

efficiency with which we discharge our responsibilities. This report sets out 

in some detail what we have done against our original plan. It is a plan 

which we have broadly delivered. 

Behind all this activity, there is a consistent set of policy objectives. We 

continue to apply a double test for any discretionary regulatory activity; we 

should regulate only when there is both market failure and the prospect that 

intervention will produce net benefits – and even then, we will see whether 

informal encouragement rather than regulatory action is the best way 

forward. The former course has proved effective both in the actions which 

we have taken to establish much greater contract certainty in the UK 

insurance market and in our work, jointly with the Federal Reserve Bank of 

New York and the SEC, to end the backlog of trade confirmations in credit 

risk derivatives. We continue to review our existing regulations, to see where 

we can eliminate regulations we judge unnecessary, or replace specific rules 

with reliance on principles. And we continue to adopt policies which are 

risk-based and proportionate (a quite different matter from being, as some 

mistakenly describe the FSA, ‘light-touch’). There is a wide range in the way 

we approach our supervisory responsibilities, with a very small number (less 

than one per cent of all those we supervise) of the firms which have the 

potential to affect our statutory duties most being subject to ‘close and 

continuous’ supervision, whereas more than 95 per cent are supervised 

principally through thematic and statistical work, with very little by way of 

visits or inspection. We accept that we cannot achieve, and that it would be 

counterproductive to pursue, a zero-failure approach. Investment involves 

risk, and risk entails occasional failure.



7 

In applying these principles, the greatest difficulties arise in the retail rather 

than the wholesale markets. I think this will continue. This is because the 

retail market – particularly for investment products – is much more difficult 

to make operate as an efficient, orderly and fair market. The reasons for 

this are many, and intractable: the complex nature of some products, and 

the difficulty in judging whether they have delivered the performance 

indicated; the extended timescale over which this judgement has to be made; 

the acute information asymmetry between providers and consumers; and the 

low level of competence of many consumers in making financial decisions. 

We have devoted increased resources and attention to tackling those 

underlying problems. It will be a long haul to solve them, but we are 

determined to do so. 

The work described in this report has put a heavy burden on FSA staff, 

which they have carried with enthusiasm and determination. Last year I said 

that the demands on them were great, and would not diminish – something 

which has emphatically been true. I am grateful to all my colleagues, 

executive and non executive, for the way in which they have responded to 

these demands. 

In the past year, three non executives have stepped down from the FSA 

Board after serving two full terms: Kyra Hazou, Tom de Swaan and Clive 

Wilkinson. They were all very good colleagues, who contributed greatly, 

both at the Board and in its various committees, to the strong and 

constructive role which the Board now plays within the FSA. I am very 

grateful to all three. 

Last year was also the last full year during which John Tiner served as Chief 

Executive of the FSA, as he will step down from executive duties and resign 

from the Board at the Annual Public Meeting on 19 July. John has been the 

Chief Executive of the FSA for nearly four years (the first person to have this 

undivided executive responsibility), and has worked for the FSA for six years 

in total. During his time as Chief Executive, the management structure and 

systems of the FSA have been substantially altered and improved, and we 

have made strides towards becoming a much more outcome focused, more 

productive organisation. All of us will miss him, none more than I. 

Callum McCarthy

8 

Chief Executive’s report 


Chief Executive’s 

report 

Introduction 

For the last several years we have 

set our strategy and arranged our 

priorities to achieve our three aims 

of: promoting efficient, orderly and 

fair markets; helping retail 

consumers achieve a fair deal; and 

improving our own business 

capability. While our direction of 

travel during 2006/07 has been 

similar to the previous three years, 

we have consciously worked to 

increase the pace of delivery in a 

number of important areas. 

Strategy 

Moving towards more principlesbased 

regulation 

I believe the benefits of a more 

principles-based approach are clear: 

a more responsive, more enduring 

regime focused on outcomes, giving 

firms the flexibility to innovate and 

compete and at the same time be 

better attuned to their customers’ 

needs. Throughout the last year we 

have been working hard – including 

with our stakeholders – to articulate 

what a more principles-based 

regime means and to identify the 

benefits, challenges and the actions 

needed to get there. Whilst this is a 

journey that will take time and 

commitment both from us and from 

the industry, we have already taken 

substantial steps in the last year to 

make this philosophy a reality. 

Specifically, we have: 

• reduced the size of the Handbook 

by almost 1,000 pages; 

• introduced principles for life 

insurers to help them calculate 

their capital on a risk basis, 

releasing some £4bn of 

regulatory capital in the UK life 

insurance industry; 

• shifted the focus of our antimoney 

laundering guidance to 

outcomes instead of prescription, 

replacing 57 pages of rules with 

two pages of principles, 

supported by useful industry 

guidance; 

• consulted on removing around 

half the content of the old 

conduct of business rulebook for 

investment business, the end 

result of which will be a new, 

substantially shorter, conduct of 

business rule book; and 

• removed some detailed 

requirements that imposed 

disproportionate costs on firms 

without commensurate benefits, 

such as the requirement for 

small firms to have an external 

auditor. 

Our move towards a more 

principles-based approach is fully in 

line with the wider Better 

Regulation agenda and we 

published our own Better 

John Tiner, FSA Chief Executive 

Regulation Action Plan Progress 

Report last year. Our Report was 

informed by three studies on the 

impact of regulation on the 

financial services industry, which 

provided valuable information on 

the costs and benefits of regulation. 

Encouragingly, the studies showed 

that much of what regulation 

requires is regarded by firms as 

good business practice. Most of the 

rules identified as imposing the 

highest incremental costs were 

already under review by the FSA, 

and in December 2006 we 

published a Simplification Plan in 

which we committed to new work 

in a small number of additional 

areas, such as the client asset rules. 

By the end of 2008 we expect to 

have reviewed rules giving rise to 

over 80% of the administrative 

regulatory costs identified in our 

studies. 

The Practitioner Panel biennial 

survey highlighted some concerns 

about the costs of regulation and, in 

particular, the burden on small 

firms. I believe that we have been 

addressing and are continuing to 

address these concerns through a 

variety of measures, including 

improving our approach to 

communicating with smaller firms, 

which I touch on below. 

Encouragingly, the survey showed 

that most firms welcome principlesbased 

regulation.



9 

Investing in our people and our 

infrastructure to improve standards 

In order to achieve all the benefits of 

a more principles-based approach, 

we need to improve our internal 

capability and we have made good 

progress over the last year. 

People remain central to the success 

of the FSA and in tough market 

conditions we have been able to 

both attract talent to and retain 

talent within the organisation. This 

will remain a significant challenge 

for us. In particular, we have 

continued to grow our graduate 

programme and were delighted to 

enter The Times Top 100 Graduate 

Employers at 93rd place. Turnover 

has remained manageable at around 

11%, which is less than the 

financial services average. We also 

continue to improve both the scale 

and intensity of our learning and 

development work. All this has 

contributed to high levels of 

employee engagement (as measured 

by our annual staff survey). We 

compare favourably with other 

high-performing organisations in 

the majority of areas. 

Knowledge management capability 

to support the work our people do 

will also be central to our success in 

delivering a more principles-based 

approach. Over the year we have 

been working on bringing our IT 

infrastructure and development 

activities to industry standard. We 

have now outsourced both, which 

will enable us to create the more 

flexible, productive and low-cost 

technology platform that we need to 

support our business and to meet 

our IT goal of being in line with the 

best in class by September 2008. 

Risk-based regulation 

A complement to principles-based 

regulation is our risk-based 

approach. The full implementation 

of our revised risk assessment 

framework – ARROW II – has 

enabled us to take a broader view of 

risk in firms. Our conversations with 

the senior management of firms are 

now focused on the key risks and 

the outcomes we would like to see. 

For the 1,300 firms which we 

relationship manage, we have also 

set out what they should expect 

from their relationship manager. 

I, and members of my senior 

management team, have been 

conducting one-on-one meetings 

with relationship-managed firms in 

order to get feedback on whether we 

are delivering on these 

commitments. Feedback so far has 

been positive, with firms welcoming 

the transparency of the process. 

Where we or firms have identified 

areas for improvement, we have 

taken action, for example by 

increasing training for supervisors 

on both technical matters and 

relationship management skills. 

We recognise that smaller firms can 

find it harder to establish which 

regulatory requirements apply to 

them and over the last year we have 

developed more ways to help them. 

Over 2,500 firms have attended our 

free roadshows and a further 1,800 

have attended industry training 

courses for small retail firms. We 

have also streamlined our 

communication with these firms to 

reduce the amount of information 

they need to digest. We ran our first 

formal customer satisfaction survey 

for both the Firm and Consumer 

Contact Centres, following earlier 

pilot studies, and the results have 

been set as the baseline for future 

studies. The results showed 

significant improvements in levels of 

customer satisfaction, and are now 

in line with industry standards. We 

are actively addressing areas where 

further improvements can be made. 

Helping consumers get a 

fair deal 

We continue to see problems in 

some areas of the retail market. The 

frequency with which we find 

examples of poor practice reflects 

some inherent and structural 

difficulties within the retail market. 

These are problems we and industry 

are working to overcome. We have 

committed a significant amount of 

resource in firm-specific supervision 

and thematic reviews to identifying 

and addressing these problems, for 

example in the selling process 

around PPI, where we still see 

weaknesses. In order to address the 

broader, structural issues in the retail 

investment market we launched our 

retail distribution review. In this 

review, we are working with 

industry, consumer and professional 

bodies to identify market solutions 

to these problems. 

I would highlight two specific areas 

where, through our intervention, we 

have been able to secure effective 

and timely outcomes for consumers. 

First, we looked at whether terms 

related to mortgage exit 

administration fees might be unfair. 

As a result, we issued a statement of 

good practice, which we agreed 

with the trade body for mortgage 

lenders. We expect that the 

measures outlined in this statement 

will protect borrowers from being 

surprised by unexpected increases in 

these fees. Second, Fund 

Distribution Limited (FDL) made its 

final payment to around 24,000 

investors who made losses in the 

split capital sector. The company 

successfully dealt with around 

40,000 applications and distributed 

in excess of £140m. The company 

has now been wound up, having 

distributed all its assets, which is a 

real achievement in a two-year 

period.

10 



Treating customers fairly 

Treating customers fairly is an 

important example of principlesbased 

regulation. We have set out 

six key outcomes for retail 

consumers which we want the 

industry to achieve. Our overall aim 

is that all firms treat their customers 

fairly in all parts of their business 

and throughout what we call the 

product life-cycle – product design, 

marketing and promotion, sales and 

advice, after-sales information, and 

complaints handling. We set out the 

targets we expected firms to reach 

by the end of March 2007. Progress 

towards these targets has been 

mixed, with over 90% of major 

retail firms meeting the deadline 

compared with just over 40% of 

smaller firms. We have been 

encouraged by the commitment of 

management to get to grips with the 

TCF principle, but the patchy 

performance in making real changes 

to the way they deal with customers 

shows that more effort from both 

the industry and us is still needed. 

One particularly complex area 

where we have made progress is in 

distinguishing between 

responsibilities to the end customer 

of product providers and 

distributors. 

Financial capability 

Helping consumers help themselves 

is a key part of our approach to 

helping retail consumers achieve a 

fair deal. In my first speech on 

becoming Chief Executive I 

announced that the FSA would 

establish and lead a National 

Strategy for Financial Capability. 

Since then, firm foundations have 

been laid and this year has produced 

a step change in delivery on the 

ground and seen us start to make a 

real impact in people’s lives. For 

example, our funding of the 

Personal Finance Education Group 

(pfeg) has enabled them to support 

over 600 schools through the 

Learning Money Matters 

programme, working with the grain 

of education, to provide schools 

with the resources and support they 

need to plan and teach personal 

finance education. We have 

distributed over 200,000 packs of 

educational material and delivered 

seminars to around 9,000 employees 

in workplaces across the country. 

Underpinning all of our consumer 

information is our consumer 

website, which we re-launched in 

January 2007. 

There is, of course, much more to 

do, but the momentum is with us 

and I am delighted that financial 

capability has become a public 

policy priority, both here in the UK 

and internationally. In this context, 

I welcome the publication in January 

of the government’s long-term 

approach to financial capability and, 

in particular, the leadership of Ed 

Balls on behalf of the government. 

The government also announced an 

independent feasibility study to 

deliver a national approach to 

generic financial advice. I believe the 

provision of generic money advice is 

a key missing component in helping 

consumers become more financially 

capable, and I am delighted that 

Otto Thoreson has been appointed 

by the government to do this work. 

I believe that lack of financial 

capability is a key challenge for 

society. To this end, we have 

increased our funding from £9.7m 

in 2005/06 to £17.1m in 2006/07 

and we plan to spend some £80m 

over the remaining four years of our 

current programme. It will take a 

generation for this initiative to take 

full effect, so the FSA and our 

partners are in this for the long 

haul. In doing so, we will build on 

what I believe has been a very 

promising start. 

Increasing transparency and 

efficiency in wholesale markets 

Whilst the external environment has 

remained relatively calm, we have 

been addressing a number of 

operational and structural issues 

which give rise to actual or potential 

market failures in wholesale 

markets. Where possible, we have 

used market solutions to effect 

change rather than adding new areas 

of rules to the Handbook, and there 

have been some notable successes in 

the last year. 

We have been working with the 

industry and the other major 

international regulators to improve 

back-office standards in 

confirmation practices (originally in 

credit derivatives but now across a 

wider range of derivatives markets). 

The industry has responded 

positively, agreeing to targets for the 

completion of relevant 

documentation, metrics to measure 

progress, and initiatives to improve 

documentation standards. As a 

result, the backlog of confirmations 

in credit derivatives has been 

reduced by 90%. 

Last year also saw the general 

insurance industry achieve the target 

I set in December 2004 for over 

85% of contracts to meet the 

market-endorsed contract certainty 

standard within two years. In fact 

the actual performance by December 

2006 was well in excess of this 

target. The improved procedures 

and changed behaviours that 

support the market’s solution have 

reduced the risks and market 

inefficiency that insurers, brokers 

and insurance buyers had been 

exposed to. The drive to achieve 

contract certainty has also served as 

a catalyst for the ongoing wider 

reform of the industry and will 

further raise the competitiveness of 

the UK industry.



11 

Tackling market abuse is one of the 

highest priorities in our work to 

maintain clean, fair and orderly 

markets and to maintain confidence 

in the UK’s markets. Whilst we have 

had a number of successful cases 

over the last year, we recognise that 

we need to do more. The challenges 

of tackling market abuse are 

significant, and during the year we 

signed a contract for the 

development of new systems which 

will materially improve our ability 

to monitor transactions across 

different markets. At £25m this will 

be the FSA’s largest IT project. 

In our supervisory activity, we 

continue to be particularly focused 

on the fast-growing segments of the 

markets such as hedge funds, and an 

emerging area of focus has been 

increasing our engagement with and 

understanding of the private equity 

sector, particularly in view of the 

rapid growth of the market. The 

growing movement of capital from 

the public to the private equity 

market over the last few years poses 

challenges for all regulators, and we 

have been engaging with the 

industry to make sure we adopt an 

approach which maintains a balance 

between capital market efficiency 

and sufficient regulation to maintain 

market confidence. We have been 

particularly keen to better 

understand the risks related to the 

use of debt in private equity 

transactions and the subsequent 

dispersion of risk through the credit 

derivatives market. 

International work 

Given the increasingly international 

nature and structure of financial 

services the international agenda 

remains a very high priority for us. 

We have continued to invest 

significant amounts of time and 

effort – particularly at senior 

management level – in influencing 

the international debate in a targeted 

way, in both formal, multilateral 

organisations, and in increasing our 

bilateral exchanges with other 

regulators. 

Of course, Europe continues to play 

a pivotal role in shaping the 

development of the regulatory 

landscape. Once again this year we 

have worked hard to steer both the 

overall style and direction of 

relevant European legislation and 

matters of substance on individual 

initiatives, such as MiFID, the CRD 

and Solvency 2. 

We believe strongly that the 

Lamfalussy committees (CEBS, 

CEIOPS and CESR) offer the best 

prospect of achieving regulatory 

convergence in the EU on a costeffective 

basis. We have been 

particularly active in pushing 

forward the frontiers of convergence 

in areas such as peer review and EUwide 

training. We have also taken 

every opportunity to promote better 

regulation within the EU 

institutions, both in general terms 

and in our comments on specific 

areas such as mortgages and asset 

management/UCITS. 

We have continued to press hard to 

ensure that Solvency 2 achieves its 

aim of providing capital standards 

for insurers which are fully aligned 

to the underlying risks. Working 

with the Treasury, we have been at 

the forefront of proposing a new 

approach to the regulation of 

insurance groups operating across 

EU borders, based on the principle 

that the adequacy of risk-based 

capital should be considered only at 

the group level and not in each 

subsidiary. This would better align 

regulation with the operating and 

economic substance of a group’s 

business. We recognise that this 

would also pose formidable 

challenges for the way in which 

regulators work with each other. 

We have also continued to be active 

at a global level in groups such as 

IOSCO, where the FSA led an 

exercise designed to improve the 

prioritisation of the organisation’s 

work, and in the Basel Committee of 

Banking Supervisors and the 

International Association of 

Insurance Supervisors. We have 

maintained a close dialogue with a 

number of our regulatory 

counterparts across the globe. In 

particular, we have stepped up our 

discussions with the United States 

SEC on a range of capital markets 

and exchanges issues. We have also 

collaborated with the SEC and the 

Federal Reserve Bank of New York 

on our supervision and policy 

approach to hedge funds. 

Enforcement 

Last year we continued to use the 

Enforcement tool to support our 

strategic priorities, with the aim of 

changing behaviour and getting a 

better deal for consumers. 

Enforcement is aligned with our 

move to more principles-based 

regulation. Our successful 

Enforcement outcomes, some of 

which were based on principles 

alone, made a real impact in 

deterring the types of behaviour 

which we consider unacceptable. 

This year was the first full year of 

using the executive settlement 

procedures which were implemented 

as a result of the Enforcement 

Process Review. Most firms and 

individuals are now proactively 

seeking settlement and a smaller 

number of cases have progressed to 

be heard by the Regulatory 

Decisions Committee. This has 

allowed us to facilitate prompt 

redress and remedial action in 

consumer-related cases, get messages 

out to the industry, and focus our 

resources efficiently and effectively.

12 



Improving our business 


Improving the quality of our 

infrastructure and of our people has 

helped to enhance the service we 

offer to firms, consumers and our 

other stakeholders. This is 

highlighted in the results we have 

published in our performance 

account. We have improved in all 

the areas of service that we 

measure, making it our best year 

yet. At the same time, we have 

expanded the number of areas 

against which we are measuring our 

performance and set ourselves 

higher targets in some areas. 

In this context, I welcome the value 

for money review of the FSA by the 

National Audit Office commissioned 

by the Treasury. The report was, in 

general, positive, both about the 

progress we have made to date and 

also about the future improvements 

we outlined in our Business Plan. 

Of course, the report also identified 

areas for further improvement. We 

welcome this input which further 

strengthens our mandate to progress 

in the strategic direction we have set. 

Closing comments 

This is my final report as Chief 

Executive. My six years at the FSA 

have been characterised initially by 

exceedingly tough market conditions 

and managing the consequences for 

firms and consumers and then, for 

the last four years, more benign 

markets, during which we have been 

able to build an organisation that I 

believe is fit to face the future. 

I would like to close by thanking 

Callum and the Board for their 

support and guidance these past few 

years and all my colleagues for their 

commitment and professional 

approach to their work. I wish them 

all the very best for the future. 

John Tiner

Section one – Promoting efficient, orderly and fair markets 


15 

Promoting efficient, orderly 

and fair markets 

Introduction 

Our work to promote efficient, 

orderly and fair markets affects both 

retail and wholesale firms. Our 

preference is for working with the 

industry to find solutions to market 

failures and to intervene only where 

the benefits of doing so are likely to 

outweigh the costs. During the last 

year this approach has led to success 

in two key areas – reducing 

confirmation backlogs in credit 

derivatives and achieving contract 

certainty in the general insurance 

market. 

Alongside our work with the 

industry to raise standards we have 

taken a robust approach to those 

who fail to meet our requirements. 

In particular, we have taken action 

against firms and individuals for 

breaches of our market conduct 

rules. To improve our effectiveness 

in preventing and detecting market 

abuse we have also made 

considerable investment in the 

development of our new transaction 

monitoring system, Sabre 2. 

We have also continued our work to 

influence the European and 

international agendas. We have 

spent a significant amount of time 

finalising our rules for the Markets 

in Financial Instruments Directive 

(MiFID) and preparing to implement 

the Capital Requirements Directive 

(CRD). 

Improving supervision 

Firms 

Following a period of significant 

growth in the trading of credit 

derivatives, in 2005 we identified 

large trade confirmation backlogs in 

firms. We worked closely with firms 

and with international regulators, 

including the Federal Reserve Bank 

of New York and the Securities and 

Exchanges Commission (SEC), to set 

targets and monitor progress in 

reducing trade confirmation 

backlogs. The industry has made 

significant progress. The number of 

credit derivative trade confirmations 

outstanding for more than 30 days 

had fallen by 90% as at 31 March 

2007. In November 2006 we 

broadened this initiative to address 

growing trade confirmation backlogs 

in equity derivatives and interest rate 

swaps. We asked firms to reduce by 

25% the number of equity derivative 

trade confirmations outstanding for 

more than 30 days; all firms had 

achieved this target by January 

2007. Eliminating such backlogs 

reduces legal uncertainty and 

operational risks and supports 

market stability. 

In December 2004 we asked the 

general insurance industry to find a 

solution to contract certainty in the 

UK by the end of 2006 or face 

regulatory intervention. In January 

2007 we reported that the market 

had, at an aggregate level, delivered a 

solution; 90% of contracts in the 

subscription market and 88% in the 

non-subscription market were 

achieving contract certainty. This is a 

major achievement by the UK 

insurance industry and has resulted 

in a more efficient market for buyers, 

brokers and insurers, and brought 

competitive benefits to the UK. 

Since introducing our risk-based capital adequacy regime for insurers at 

the start of 2005, we have reviewed all the largest firms’ Individual Capital 

Assessments (ICAs) and are on course to complete the review of the ICAs 

of all other insurers by mid-2007. Our new regime has led to significant 

improvements in risk management and to the understanding of risk and 

capital issues by boards and senior management. 

In February 2007 the Association of British Insurers (ABI), in partnership 

with other trade associations, published a guide to the ICA process for 

insurers. We worked closely with the trade associations to develop this 

guidance, which provides commentary and examples of how firms may 

achieve our objectives for ICAs.

16 



In November 2006 we fined General Reinsurance UK Ltd (General Re) 

£1.225 million for breaching our Principles for Businesses. General Re had 

arranged two improper reinsurance transactions: the first enabled a 

German insurer to gain tax benefits by transferring money between 

Germany and Ireland; the second was used to compensate for premium 

reduction on a reinsurance programme agreed with a client insured by 

General Re. Conventional and finite reinsurance transactions should be 

used only where there is a legitimate commercial purpose and significant 

risk transfer. 

Following concerns about the 

handling of client money by retail 

and wholesale general insurance 

intermediaries, in May 2006 we 

published a client money guide and 

in November 2006 we launched a 

web-based training course for firms. 

Results from our visits to 161 

general insurance intermediaries 

show that these tools have helped 

them to understand client money 

handling. However, it was clear that 

some firms used the help available 

only once they were aware of our 

planned visit. We remain concerned 

about the standards of compliance 

in this area and will continue to take 

action against firms and individuals 

who do not handle client money 

properly. 

Our supervision of hedge fund 

managers has focused on the two 

main areas of risk we identified in 

our March 2006 Feedback 

Statement: the disclosure to investors 

of side letters with material terms; 

and the valuation of illiquid assets. 

In 2006 we cancelled the permission of two firms to carry on regulated 

activities after they failed to pass on client premiums to insurers. 

Walsall Bridge Insurance Consultants Limited and ICM Group Limited left 

clients potentially uninsured and used money received as client premiums 

to run their businesses. We also prohibited the Director of Walsall Bridge, 

Geoffrey Robbins, and the two Directors of ICM Group, Ian Ruff and Jon 

Batchelor, from conducting any further regulated activity after finding 

them not fit and proper. 

In August 2006 we fined Merrill Lynch International £150,000 for failing 

to report accurately the capacity in which it executed transactions in 

non-UK European equities. The estimated number of trades inaccurately 

reported was 1.2 million over a nine-year period. Accurate transaction 

reports are critical to our ability to maintain confidence in the financial 

markets and reduce financial crime. 

In July 2006 we successfully defended an application by OJSC NK Yukos 

(Yukos) for leave to judicially review our decision to admit Rosneft’s 

Global Depositary Receipts to the Official List. Yukos had sought to argue 

that our decision to admit Rosneft’s securities to listing would be 

detrimental to investors under section 75(5) of the Financial Services and 

Markets Act 2000 (FSMA). Following a two-day hearing, Mr Justice Clark 

decided that we had correctly applied the legal doctrine of Act of State, 

and had not erred in law in admitting Rosneft’s securities to listing. 

We identified a practice among some 

hedge fund managers of granting 

material preferential terms to some 

investors which may be to the 

detriment of other investors. We 

worked with the Alternative 

Investment Management Association 

(AIMA) to seek an industry-led 

solution, and in October 2006 

AIMA published guidance for the 

industry on defining and disclosing 

the existence of material terms. We 

completed thematic work on the 

difficulty of valuing positions in 

illiquid assets and markets, or in 

circumstances where no 

independent, objectively verifiable, 

screen prices are available. Valuation 

errors can lead to investor detriment 

and, in extreme cases, fraud can 

result from deliberately misleading 

valuations. We chaired an 

International Organisation of 

Securities Commissions (IOSCO) 

subcommittee which developed and 

recently published a set of principles 

for sound valuation policies and 

pricing procedures. These principles 

are intended to set global standards. 

Markets 

Competition and consolidation 

among market infrastructure 

providers has continued in the last 

year. The industry has become 

increasingly internationalised and we 

have increased our cooperation with 

overseas regulators. 

During the takeover bid by Nasdaq 

for the London Stock Exchange, we 

worked with all interested parties, 

including the SEC, to consider the 

potential regulatory implications of 

the deal. In addition, following the 

announcement that Euronext NV 

and the NYSE Group Inc were to 

merge, we worked as part of the 

College of Euronext Regulators and 

with the SEC to assess collectively 

the regulatory risks of the 

combination and to ensure a 

satisfactory outcome.



17 

Separately we agreed Memoranda 

of Understanding with the 

Commodity Futures Trading 

Commission (CFTC) and the SEC to 

help with our transatlantic 

cooperation. In September 2006 we 

helped the CFTC with its review 

into its no-action regime for Foreign 

Boards of Trade accessing the US 

(such as Euronext.Liffe and ICE 

Futures in the UK). The CFTC 

decided not to make any material 

changes to its no-action process. 

We have seen a rise in the number of 

new entrants into the UK market 

providing market infrastructure. 

This includes a number of 

Multilateral Trading Facilities and 

we expect MiFID to lead to further 

competition and fragmentation of 

trading between venues and market 

participants. We are considering the 

implications for the structure of the 

market and for our supervision. In 

January 2007 we granted the German 

clearing house Eurex Clearing AG 

Recognised Overseas Clearing House 

status (ROCH). There are now two 

ROCHs doing business in the UK. 

In response to concerns that 

exchanges or clearing houses might 

seek to impose disproportionate 

requirements on users of markets, in 

particular as a result of a takeover 

of a UK recognised body by an 

overseas entity, Parliament legislated 

to enable us to veto such 

requirements. We assisted the 

Treasury in considering the issues 

and in developing the Bill which 

became the Investment Exchanges 

and Clearing Houses Act. 

Strengthening markets 

Market abuse 

Our priority in the last year has 

been to focus on high-impact cases 

of market abuse. Despite the 

inherent difficulties in bringing 

market misconduct cases, we have 

taken enforcement action against 

several firms and individuals for 

breaches of our market conduct 

rules and of our principles for firms 

and individuals. This sends a clear 

message to the market about what 

standards must be achieved to 

maintain clean financial markets. 

In August 2006 we fined hedge fund manager GLG Partners LP (GLG) and 

Philippe Jabre, a former managing director of GLG, £750,000 each for 

market abuse. Mr Jabre traded on the basis of confidential information 

during a period where he had agreed to be restricted from dealing. This is 

the largest fine we have imposed on an individual, and because of Mr 

Jabre’s position at GLG, the firm was held accountable for his actions and 

was also found to have committed market abuse. Mr Jabre referred the 

matter to the Financial Services and Markets Tribunal. In a preliminary 

issues hearing, the Tribunal ruled that it could impose a different or 

greater sanction than proposed by our Regulatory Decisions Committee. 

The Tribunal also ruled that someone in possession of relevant information 

on a UK traded stock cannot circumvent the UK market abuse regime by 

trading in that stock on an overseas market. Mr Jabre subsequently 

withdrew his reference to the Tribunal. 

In November 2006 we fined Sean Pignatelli £20,000 for failing to exercise 

due skill, care and diligence and to observe proper standards of market 

conduct when carrying out his function as an approved person. Mr 

Pignatelli failed to consider whether he had received inside 

information before he embarked on a series of calls during which he 

passed on that information. Furthermore, the way in which he passed on 

the information gave the impression, albeit unintentionally, that he was 

passing on inside information. This case demonstrates the importance we 

attach to market participants giving due care and attention to the 

information they disseminate to the market. 

In June 2006, together with the 

Bank of England, we assessed the 

clearing and settlement 

procedures of CRESTCo and 

LCH.Clearnet against Committee 

on Payment and Settlement 

Systems/IOSCO international 

standards. Both demonstrated 

strong compliance with these 

standards at the time of the 

assessment. 

In October 2006 we fined James Parker £250,000 for market abuse. Mr 

Parker, a senior accountant employed by a listed company, engaged in 

market abuse by placing spread bets on share price movements of his 

employer while in possession of relevant financial information by reason 

of his employment. Mr Parker made an abusive profit of £121,742. The 

Tribunal imposed a higher punitive element in the fine than we had 

proposed.

18 



In February 2007 we obtained an injunction against two individuals to 

restrain the proceeds of suspected market abuse. It appears that one of 

the individuals was an insider to an impending takeover announcement 

and may have passed information to another individual who traded on the 

basis of that information. The individuals concerned made a profit of 

£50,000. This is the first time we have obtained an asset freezing 

injunction under FSMA for the proceeds of suspected market abuse. Our 

investigation continues. 

We have increased our focus on antimarket 

abuse systems and controls. 

Our supervisory risk assessments 

have reviewed controls and, where 

relevant, highlighted areas for 

improvement. We have set out what 

we expect of firms’ senior 

management and have completed a 

range of thematic work to review 

practices and raise standards, 

providing feedback to the industry 

through our MarketWatch 

newsletters. This has included 

reviews of the credit markets, the 

controls over information during 

public takeovers and suspicious 

transaction reporting. 

In March 2007 we published an 

updated measure of UK market 

cleanliness. We measured this by 

looking at the extent to which share 

prices move ahead of the regulatory 

announcements that companies make 

to the market. We welcomed the 

improving trend in market 

cleanliness; however, the figures for 

takeover announcements remain a 

cause for concern. We have launched 

a major project to review the controls 

over price-sensitive information in 

relation to takeovers. 

Finally, we have continued our 

programme to enhance our 

transaction monitoring system, Sabre 

2. Following a comprehensive 

procurement exercise we signed a 

contract with an external supplier to 

develop a new system, and work is 

now progressing on designing and 

building it. The new system will 

significantly enhance our capability 

to detect market abuse as well as 

enabling us to comply with our 

obligations under MiFID to exchange 

transaction reports with our 

Committee of European Securities 

Regulators (CESR) colleagues. 

Financial stability 

We have worked closely within the 

framework of the Tripartite 

Authorities – the FSA, the Bank of 

England and the Treasury – to 

develop Factbooks, which provide 

key information on major firms 

needed in the event of a financial 

crisis. They are designed to minimise 

the burden on firms by using data 

which firms might use for their own 

internal management purposes. In 

January 2007 we launched a system 

to capture this data, which firms are 

providing voluntarily. 

We reviewed the stress-testing 

practices in ten large firms in the 

banking, building society and 

investment banking sectors. Most 

firms had practices that went some 

way to meeting our requirements but 

further improvements were needed, 

particularly where firms were not 

fully taking into account severe but 

plausible scenarios when making 

strategic or risk management 

decisions. In addition, together with 

the Bank of England, we organised a 

series of seminars with major firms 

to explore improvements in their 

stress testing. It is the responsibility 

of a firm’s senior management to 

ensure that its affairs are adequately 

monitored and controlled. 

In 2006 we led a market-wide 

exercise on behalf of the Tripartite 

Authorities based on a flu pandemic 

scenario. The simulation ran for six 

weeks and involved 3,500 staff from 

70 organisations. In January 2007 

we published a report setting out the 

main lessons learned. This work has 

led to a substantial improvement in 

Tripartite and participants’ 

preparedness to deal with a 

pandemic and has raised some 

substantial topics for further 

consideration. There has been strong 

interest from overseas regulators in 

our model. 

In November 2006 we launched a 

business continuity management 

toolkit for firms. It is an online selfassessment 

tool and a guide 

containing examples of standard and 

leading market practice. It helps 

firms to measure their resilience and 

recovery capability and to identify 

improvements to strengthen their 

business continuity and crisis 

management arrangements. 

Combating financial crime 

We have played a leading role in 

moving the UK towards a more 

principles- and risk-based approach 

to financial crime. We have made 

changes to our own rules; in August 

2006 we replaced our Money 

Laundering Sourcebook with highlevel 

guidance in our Senior 

Management, Systems and Controls 

Sourcebook. We also worked with 

the Joint Money Laundering 

Steering Group (JMLSG) on its 

review of its Guidance Notes, 

participated in the negotiations over 

the Third EU Money Laundering 

Directive and helped the Financial 

Action Task Force to develop a riskbased 

approach to anti-money 

laundering and counter-terrorist 

financing. All these developments 

should lead to a more cost-effective 

regime which is responsive to 

developments in financial crime



19 

techniques, reduces the scope for 

criminals to launder money through 

the UK financial system and reduces 

the inconvenience to honest 

consumers. 

In September 2006 we published a 

consumer leaflet to raise awareness 

of the changes in identity 

requirements. We explained why 

firms are required to check 

customers’ identity and gave advice 

to people having difficulty proving 

their identity. We also explained 

how identity checks help prevent 

crimes such as identity theft and 

terrorist financing. 

During the year we visited 16 firms 

(including banks, investment banks, 

investment firms and insurers) to 

assess their systems and controls for 

managing Politically Exposed 

Persons (PEPs) risks. We found the 

firms largely complied with the 

JMLSG Guidance Notes and the 

Third EU Money Laundering 

Directive’s PEPs provisions. 

We have created a new Financial 

Crime and Intelligence Division. 

This will enable us to make more 

effective use of our financial crime 

expertise, with more specialist 

resources. We have also trained our 

supervisors to improve their analysis 

of the financial crime risks facing 

firms. 

Improving policy 

Many of our rules derive from 

European Community requirements; 

we are required to implement 

Directives on time and in full. Our 

approach is to copy out the text 

into our Handbook, adding 

interpretative guidance where that 

will be helpful. We add additional 

requirements only where there is a 

proven market failure and the 

proposal is justified by cost-benefit 

analysis. As with all proposed rules 

and guidance, we also consider the 

In February 2007 we fined Nationwide Building Society £980,000 for failing 

to have effective systems and controls in place to manage its information 

security risks. These failings came to light following the theft of a laptop 

from an employee’s home. Nationwide was not aware that the laptop 

contained confidential customer information and did not investigate until 

three weeks after the theft. Nationwide’s failure to implement robust 

systems and controls potentially exposed its customers to an increased risk 

of financial crime. 

In November 2006 the High Court granted our application for interim 

restraint and freezing orders against Christian Orpin trading as PDS Business 

Finance. In our view, Mr Orpin operated a property scheme financed by 

deposits accepted from investors without authorisation, in breach of 

FSMA. Most deposit-taking and investment schemes require FSA 

authorisation. 

In August 2006 and February 2007 the High Court placed Securetrade & 

Title Company Ltd and Inertia Partnership LPP into liquidation following 

winding-up petitions we made to the Court. Both firms had acted in breach 

of FSMA by helping several overseas boiler rooms that were unlawfully 

promoting and selling shares to UK investors. Earlier in 2006 we publicised 

the risks arising from investing through boiler rooms, warning investors 

that they would not have access to our complaints or compensation 

schemes and that the typical boiler room investor loses £20,000. 

proportionality of our proposals as 

well as their potential impact on 

innovation and on the desirability 

of maintaining the competitive 

position of the UK. 

EU policymaking 

We have continued to contribute 

significantly to the Lamfalussy 

Committees’ work to achieve greater 

supervisory convergence within 

Europe. In particular, we chair the 

Committee of European Banking 

Supervisors (CEBS) Convergence 

Task Force, which is developing 

proposals for implementing the 

Francq Report recommendations on 

supervisory convergence. We 

support the work that the 

committees are now pursuing to 

develop their future strategies on 

convergence and cooperation. 

In its second interim report on the 

structure of regulation in the EU, the 

Inter-Institutional Monitoring Group 

found that the Lamfalussy structure 

is effective but there is scope for 

improvement. We support this broad 

assessment and will continue to take 

an active interest in the Group’s 

emerging conclusions and 

recommendations. 

One of our priorities in Europe has 

been to encourage the Commission 

to adopt a better regulation 

approach. Our focus has been on 

promoting the use of impact 

assessments and we have provided 

advice on improving their quality 

and offered to participate in them.

20 



Markets in Financial Instruments 

Directive (MiFID) 

MiFID introduces new requirements 

for a wide range of firms, 

particularly in relation to conduct of 

business and internal organisation. 

During the year we consulted 

extensively with industry and in 

January 2007 we finalised the rules 

for implementing the MiFID 

requirements. We introduced these 

rules before other Member States 

and this has helped UK firms 

prepare for implementation; we 

have taken a proportionate 

approach to minimise the burden on 

firms. After careful consideration 

and cost-benefit analysis, we 

notified the Commission to retain a 

small number of existing 

requirements which we believe 

necessary to address risk to our 

statutory objectives. 

Together with the Treasury we have 

engaged closely with the industry 

through regular meetings with trade 

associations, discussions with 

individual firms and their advisers, 

and conferences. A Joint 

Implementation Plan published with 

the Treasury in May 2006 helped to 

keep industry up to date with our 

plans for consultation. Later in the 

year supervisors reviewed how firms 

in various sectors were progressing 

with their preparations. The results 

were generally encouraging and 

identified some common themes 

which we are using as a basis for 

further discussions with firms. 

We have continued to contribute to 

the work being led by CESR on the 

practical regulatory issues arising 

from MiFID. We are also working 

with CESR and the industry to 

promote an evidence-based focus on 

intended policy outcomes within the 

Commission’s reporting on the 

appropriateness and effectiveness of 

a number of MiFID’s provisions. 

We used the implementation of 

MiFID as an opportunity to review 

and simplify our Conduct of Business 

Sourcebook. These changes will 

affect all firms subject to our 

current conduct of business rules, 

many of which do not fall within 

the scope of MiFID (see Section 

Two). 

Capital Requirements Directive 

(CRD) 

The CRD implements the revised 

Basel capital framework (Basel 2) in 

the EU and aims to ensure that the 

financial resources held by banks, 

building societies and some types of 

investment firms reflect the risks 

associated with their business 

profile and control environment. On 

1 January 2007 our final rules and 

guidance came into effect following 

extensive consultation with the 

industry. 2007 is a transitional year; 

firms may elect to remain on the 

Basel 1-based rules for some or all 

of 2007. 

We have worked closely with firms 

to prepare for implementation – 

particularly with investment firms to 

help them identify the impact on 

their capital requirements. We have 

also supported trade associations in 

their communications with 

members, provided practical 

information on our website and 

spoken at industry events and 

conferences. In addition, we have 

begun a major programme to review 

waiver applications from firms 

seeking to adopt the internal 

ratings approach to credit risk and 

the advanced measurement 

approach to operational risk. 

We are collecting the key data 

required under the CRD through a 

basic electronic reporting system, 

which supplements firms’ existing 

reporting. This is an interim 

solution agreed in consultation with 

trade associations and is designed 

to minimise the CRD reporting 

requirements during 2007. 

During the year we have worked 

closely with overseas regulators and 

international bodies to promote the 

consistent and efficient application 

of Basel 2/CRD and to address 

issues arising from the cross-border 

application of the new rules. 

Through our membership of the 

Basel Committee’s Accord 

Implementation Group we are also 

developing a shared understanding 

of good practice, particularly in 

relation to model validation, Pillar 2 

and stress testing. 

Other MiFID/CRD-related 

initiatives 

In Consultation Paper 06/9 we 

consulted on implementing the 

requirements in MiFID and the CRD 

on firms’ systems and controls. We 

proposed a single set of rules and 

guidance (a ‘common platform’) in 

our Handbook, which met the 

requirements of both directives and 

corresponded with how firms told us 

they organise their internal 

governance. Most respondents to 

our consultation supported this 

approach and the common platform 

will become mandatory for all firms 

subject to either or both of MiFID 

and the CRD on 1 November 2007. 

As part of MiFID the Commission is 

reviewing the transparency regime 

for the trading of financial 

instruments other than shares 

admitted to trading on a regulated 

market. In July 2006, following 

consultation with the industry we 

published a Feedback Statement 

setting out our view that mandating 

transparency would not be 

proportionate for the UK’s secondary 

bond markets. However, we also



21 

asked the industry to consider what 

additional transparency it could 

provide on a voluntary basis to help 

price discovery for smaller 

participants in these markets. We 

believe an industry-led initiative is 

likely to be a more cost-effective 

means of addressing any 

transparency concerns and have had 

discussions with CESR and with the 

Commission on this basis. 

As the CRD provides, the 

Commission, with the involvement 

of CEBS, is reviewing the large 

exposures regime for banks and 

investment firms. We set up a 

liaison group to discuss issues 

arising from the review with the 

Treasury and the industry and have 

chaired the CEBS working group 

providing advice to the Commission. 

Our aim is to achieve a more 

principles-based and risk-sensitive 

regime that takes into account the 

diverse range of UK financial 

institutions. 

During the year, through active and 

constructive engagement within 

CEBS and working closely with the 

Treasury, we have sought to ensure 

that work on the review of the 

definition of capital within the EU 

is undertaken in parallel with that 

of the Basel Committee (see 

International work). 

The Commission is also reviewing 

the extent to which trading in 

commodity derivatives should be 

regulated under MiFID and the CRD. 

This work is at an early stage but 

we expect to play a significant role 

in influencing its outcome through 

our involvement in CEBS and CESR. 

We will use the paper on commodity 

markets we published in March 2007 

to inform our discussions in Europe 

(see Domestic policymaking). 

Other EU initiatives 

In December 2006 we introduced 

rule changes following our 

consultation on implementing the 

Reinsurance Directive. As we 

already required reinsurers to meet 

similar rules the overall effect on 

them was limited, with cost savings 

for some firms. In addition we 

introduced a regime for Insurance 

Special Purpose Vehicles to help 

insurers manage their risks through 

reinsurance more effectively. 

We implemented the Transparency 

Directive on time on 20 January 

2007. The changes affect periodic 

financial reporting and the 

disclosure of major shareholdings 

for issuers whose securities are 

admitted to trading on a regulated 

market in the EU. 

We have worked closely with the 

Treasury and CEBS during the 

negotiation of the Directive on the 

Prudential Assessment of 

Acquisitions in the Financial Sector. 

European Finance Ministers agreed 

the final text of the Directive at the 

EcoFin meeting on 27 March. The 

new legislation is intended to ensure 

cross-border acquisitions face fewer 

regulatory obstacles. Most 

importantly, the new regime 

achieves an appropriate balance of 

power between the proposed 

acquirer and the competent 

authorities concerned. 

The Solvency 2 Directive aims to establish a revised set of EU-wide, riskbased 

solvency requirements for life and non-life insurers and reinsurers, at 

a solo and group level. In the Committee of European Insurance and 

Occupational Pensions Supervisors (CEIOPS) we have been actively engaged 

in several Working Groups, including chairing the Pillar 1 Working Group 

drawing up technical advice to the Commission on the drafting of the 

Framework Directive, and notably achieving a CEIOPS consensus on a 

market-consistent valuation standard for liabilities to policyholders. We 

achieved a good UK participation in CEIOPS’ second quantitative impact 

study (QIS2) to test the suitability and impact of their proposals, the 

results of which highlighted issues for UK firms with the design of the 

Minimum Capital Requirement. QIS3, running from April to October 2007, 

is well under way. We have worked closely with the Treasury in providing 

comments to the Commission on draft Directive text and in preparation for 

Level 2 discussions. 

A significant part of our work has involved working closely with the 

industry, including through the FSA/Treasury High Level Group and our 

Insurance Standing Group. In 2006 we published two FSA/Treasury 

Discussion Papers: Solvency 2: a new framework for prudential regulation of 

insurance in the EU; and Supervising Insurance Groups under Solvency 2, 

which has been influential in highlighting the need for streamlined group 

supervision in Solvency 2.

22 




Within the Basel Committee on 

Banking Supervision we have 

continued to contribute to the 

development of a range of 

initiatives. A key achievement was 

agreement on the revised ‘Core 

Principles for Effective Banking 

Supervision’, which is a benchmark 

for assessing the quality of a 

country’s banking supervisory 

system. We have also supported the 

Committee’s efforts to begin work 

on revising the definition of capital 

and liquidity risk management. 

We chair the International 

Association of Insurance 

Supervisors subcommittees on 

developing solvency standards and 

reinsurance transparency. Through 

these committees we have 

contributed to a range of 

internationally agreed principles, 

standards and guidance, including 

in asset liability management, finite 

reinsurance and solvency 

assessments. 

In November 2006 we hosted the 

International Organisation of 

Securities Commissions (IOSCO) 

Technical Committee and 

Conference. This helped to raise the 

profile of IOSCO and enhance 

communications between it and the 

industry. We have also supported 

IOSCO’s initiative to prioritise its 

agenda. In addition, we chair 

IOSCO’s Standing Committee 4, 

which leads on the work to raise 

standards of cooperation in 

jurisdictions that are important to 

the global financial markets. 

Standing Committee 4 has worked 

closely with a number of 

jurisdictions that carry out 

significant cross-border business. 

This has resulted in improved 

standards in several cases. 

During the year we have worked in 

the Financial Stability Forum to 

identify vulnerabilities and propose 

solutions. In particular we have 

supported the Forum in seeking to 

develop a dialogue with industry to 

identify market failures that might 

affect financial stability. 

On International Financial 

Reporting Standards, we have 

worked through CESR-Fin and 

IOSCO to develop standards that 

are capable of consistent application, 

interpretation and enforcement. We 

have made good progress towards 

our aim of achieving convergence in 

global accounting standards, 

particularly on the requirements for 

EU issuers with a US listing and 

non-EU issuers. 

Domestic policymaking 

In December 2006 we published 

Policy Statement PS06/14 

introducing further changes to our 

prudential regime for insurers. By 

removing many of the existing areas 

of super-equivalence compared with 

the EU Life Directives, our new 

requirements release around £4bn 

of capital across the life insurance 

industry. We also introduced a set of 

sub-principles and confirmed 

associated industry guidance for 

both life and non-life insurers. This 

will make our Individual Capital 

Adequacy Standards regime more 

principles based and give firms 

greater clarity when undertaking 

their ICAs. 

In 2006 our new rules limiting the 

use of dealing commission by asset 

managers to execution and 

research came into effect. Our 

rules set the framework within 

which an industry-led solution has 

been introduced to improve the 

transparency and accountability of 

fund managers to their clients. 

We expect this to increase 

innovation and enhance the 

international competitiveness of 

UK markets. In October 2006 we 

published a report by economic 

consultants, who have helped us 

develop a way to assess the extent 

to which our new rules and the 

industry-led solution deliver the 

desired outcomes. The report 

establishes a baseline against 

which we can assess future 

changes. 

In November 2006 we published a 

Discussion Paper on the impact that 

the growth in the private equity 

market has had on the UK’s 

wholesale markets. We identified 

some key emerging risks and invited 

the market to comment on our 

analysis of these risks and our 

proposals for addressing them. In 

particular we are proposing to carry 

out a regular survey of leveraged 

buyout activity and to enhance 

financial reporting requirements for 

private equity firms. Our aim is to 

achieve a proportionate level of 

regulatory engagement with private 

equity markets, providing 

appropriate investor protection 

while taking into account the 

impact of any action on UK 

competitiveness. 

We published a paper in March 

2007 examining the recent growth 

in investment in commodity 

markets. We found that the recent 

growth, combined with the 

development of new products and 

new participants, has given rise to a 

number of new risks and challenges. 

Firms and exchanges need to 

consider how they have addressed 

these risks and continue to mitigate 

them in the future.



23 

In 2006 we published two 

Consultation Papers, CP06/4 and 

CP06/21, proposing changes to the 

listing rules for investment entities. 

Our new rules are intended to 

introduce a more principles-based 

approach to determining eligibility 

for listing, which reduces barriers to 

listing and improves the competitive 

position of the UK’s capital markets 

while maintaining appropriate 

standards of investor protection. In 

response to market feedback we will 

consult further later in the year on 

introducing a single listing regime 

for all UK and overseas closed-ended 

investment funds. 

In October 2006 we published 

Consultation Paper CP06/17 

proposing changes to the listing and 

prospectus rules. Our proposals 

simplify and modernise the listing 

regime and are designed to achieve a 

more efficient, innovative and 

competitive market.

Section two – Helping retail consumers achieve a fair deal 


25 

Helping retail consumers 

achieve a fair deal 

Introduction 

One of our key priorities is to help 

retail consumers achieve a fair deal. 

To achieve this aim we focus our 

work on what we consider to be the 

four key features of effective retail 

markets: 

• capable and confident consumers; 

• clear, simple and understandable 

information available for, and 

used by, consumers; 

• soundly managed and adequately 

capitalised firms that treat their 

customers fairly; and 

• risk-based and principles-based 

regulation. 

We have made significant progress 

in delivering our financial capability 

strategy. As part of this we relaunched 

the clear, impartial 

information we provide to 

consumers under our 

Moneymadeclear brand. 

We have seen some progress on 

treating customers fairly (TCF); an 

encouraging number of firms are 

implementing necessary changes in a 

substantial part of their business. 

However, a sizeable number of firms 

failed to meet our deadline of 

reaching the implementing stage in 

their TCF strategy by 31 March 

2007. Our thematic work, including 

our review of the quality of advice 

and sales processes, supported our 

overall conclusions on TCF. 

Retail distribution review 

We launched this review in June 2006 in response to recurrent problems in 

the distribution of retail investment products. We are working with 

industry and consumer representatives to find solutions that are attractive 

both to consumers and firms. The review focuses on: 

• the sustainability of the sector; 

• the impact of incentives; 

• professionalism and reputation; 

• consumer access to financial products and services; and 

• regulatory barriers and enablers. 

In our policymaking we have 

become increasingly principles 

based, for example in our new 

conduct of business rules and 

financial promotions requirements. 

There are still some significant and 

persistent problems in the retail 

markets for investment products. 

Our retail distribution review, 

outlined above, is designed to 

deepen our understanding of the 

root causes and help address them. 

Until these root causes are resolved, 

only limited progress can be made 

towards improved outcomes for 

consumers in this sector. 

Capable and confident 

consumers 

National Strategy for Financial 

Capability 

Our financial capability survey, 

published in March 2006, showed 

that many consumers lack the 

confidence and capability to make 

effective decisions about their 

money. We launched a seven-point 

programme to improve significantly 

people’s levels of financial capability 

and, together with our partners, we 

have focused on delivering these 

priority initiatives. We estimate, on a 

conservative basis, that this year the 

programme has reached more than 

one million people. Improving 

people’s financial capability will 

enable them to exert a stronger 

influence in the retail markets, 

creating more effective and efficient 

markets and reducing the need for 

regulatory intervention. We 

welcomed the publication of the 

government’s long-term approach to 

financial capability in January 2007, 

which complements the National 

Strategy. 

In particular this year we delivered 

real benefits to consumers through 

the following.

26 



• Learning Money Matters: we 

funded this programme in 

schools, delivered by the Personal 

Finance Education Group, which 

supported 617 schools (against a 

target of 500) in England to help 

them provide effective personal 

finance education. 

• Make the Most of Your Money 

workplace programme: we 

distributed 203,205 packs of 

educational material (via 126 

employers) against a target of 

200,000. We delivered seminars 

to 8,910 employees (at 75 

employers) against a target of 

15,000. We are looking at ways 

to increase attendance and are 

developing a CD/DVD as an 

alternative way of delivering the 

seminar. Independent evaluation 

of feedback provided by seminar 

attendees has shown that 82% of 

attendees intended to take 

positive action as a result of 

attending the seminar, and that 

within three months 60% of 

seminar attendees had already 

turned their intention into action. 

• Helping young adults make sense 

of money: we worked with 19 

universities (target of 10-20) to 

roll out the Money Doctors 

toolkit. We recruited ten further 

education colleges to adapt the 

toolkit for their sector and begin 

to embed personal finance in their 

curriculum. We also met our 

target to train youth workers in 

12 organisations which work 

with young people who are not in 

employment, education or 

training; just over 700 staff from 

these organisations attended our 

training courses across the UK. 

• Parent’s Guide to Money: we 

developed a guide for new and 

expectant parents which contains 

the financial information they are 

likely to need and explains where 

they can get more help if they 

need it. We worked with parents 

to develop the guide and then 

tested it with over 1,500 

expectant parents, distributing it 

through a range of employers. 

Feedback has been very positive. 

• Financial Healthcheck and Debt 

test online tools: we have 

maintained these tools on both 

the FSA and BBC websites, and 

31 partners (including Citizens 

Advice, the Pensions Service, 

Directgov, Royal Bank of 

Scotland, HSBC and HBOS) have 

added links to our tools on their 

websites. The number of visits to 

these tools has doubled, from 

54,000 to 109,000 a month. 

• Money advice: the most effective 

way for us to deliver money 

advice is through working in 

partnership with intermediaries, 

including building on projects 

funded through our Innovation 

Fund. In the last year we funded 

12 projects in 12 different sectors 

including social housing, offender 

management and disability 

services. The government has set 

up a feasibility study to design, 

research and test a national 

approach to the delivery of 

money advice. We seconded two 

people to the Treasury to work 

on this study. 

• Consumer communications 

strategy: in the last year we 

received over 2.2 million visits to 

our consumer website and 

distributed over ten million copies 

of our booklets. Our work in this 

area is outlined in Clear, simple 

and understandable information. 

Financial inclusion 

Although we have no statutory 

responsibility for promoting 

financial inclusion, our work 

contributes to this issue. For 

example, we have an important role 

to play through our leadership of the 

National Strategy for Financial 

Capability, our work with credit 

unions and Community 

Development Finance Institutions 

and our work on customer 

identification requirements. Through 

our Innovation Fund we have also 

funded a number of community 

projects designed to address 

financial exclusion. 

In our work with credit unions we 

have continued to operate the 

existing legislative framework as 

flexibly as possible and to take steps 

to minimise the potentially adverse 

effects of European Directives. We 

also continue to work with the 

Treasury on its review of 

cooperative legislation. In addition, 

we have supported the Community 

Development Finance Association, 

the trade body for Community 

Development Finance Institutions, 

on the drafting of a Code of Practice 

for its members. The Code will set 

some minimum standards which 

firms will be required to meet as a 

condition of membership. 

Following the collapse of Farepak, 

the Christmas hamper savings 

scheme, we worked with others, 

including the Department of Trade 

and Industry (DTI) and the Office of 

Fair Trading (OFT), to provide 

information for consumers about 

options for saving outside the 

mainstream banking sector. The DTI 

has also reached an agreement with 

the industry to offer better 

protection to consumers who pay 

into these schemes. 

Sharia-compliant banking plays a 

major role in the global financial 

system and contributes to financial 

inclusion by giving retail consumers 

access to products that are compliant 

with Islamic law. We work to 

promote a level playing field between 

conventional and Islamic institutions 

and have participated in a number of 

expert government and private sector 

groups. We have also shared our 

knowledge and experience at 

international seminars and 

conferences.



27 

Clear, simple and 

understandable information 

The FSA as a source of clear, 

impartial information for 

consumers 

In December 2006 we launched our 

new consumer website, 

Moneymadeclear. It is designed to 

be more engaging and more 

accessible, for example by having 

relevant entry points such as retiring 

soon or starting a family. Consumer 

testing following the launch of our 

website has confirmed that it is 

easier to use and that the smaller 

chunks of information are easier to 

digest. 

In February 2007 we launched our 

first advertising campaign promoting 

Moneymadeclear as a source of 

clear, impartial information from the 

FSA, and focusing specifically on 

insurance. During the campaign we 

received around half a million visits 

to the website and our Compare 

Products tables, and 3,000 

downloads of the insurance checklist 

designed to give consumers a head 

start when buying insurance. For the 

first time we used radio advertising 

and audio podcasting to reach our 

target audience. We are monitoring 

the effectiveness of our campaign, 

asking specifically what people have 

done as a result of using our 

information. 

We have also reviewed the impact 

and effectiveness of our range of 

hard copy consumer information 

booklets and are reviewing and relaunching 

them under the 

Moneymadeclear brand. In addition 

we are exploring new distribution 

channels, for example through 

banks, building societies and credit 

unions, to increase the availability of 

our booklets. 

Information provided by firms 

to consumers 

It is important for firms to give 

consumers enough information to 

enable them to make informed 

decisions about whether to buy 

investment products. Our point-ofsale 

disclosure requirements are 

designed to make it easier for 

consumers to compare products and 

so promote competition. Following 

a review of our requirements, we 

concluded that we can best achieve 

our aims by focusing on initiatives 

to improve the quality of existing 

documents, rather than by 

introducing entirely new 

requirements. We have set out 

proposals to reduce the overall 

number of disclosure documents 

that we require, improve consumers’ 

awareness of these documents and 

encourage consumers to use them. 

Financial promotions 

Over the last year we have delivered 

a substantial improvement in the 

quality of firms’ financial 

promotions. We reviewed around 

5,000 promotions issued by 

individual firms and investigated 

further in 456 cases; in around half 

of these cases we asked firms to 

amend or withdraw promotions. In 

the worst cases we required them to 

contact customers affected by the 

promotions to offer redress. We also 

reviewed a sample of promotions to 

give us a snapshot of the level of 

compliance with our requirements; 

the number of investment 

advertisements falling below 

standard was 32%, compared with 

52% in 2004. 

We also completed thematic work in 

two areas where we identified 

substantial non-compliance in 

advertising – sub prime mortgages 

and general insurance. We reviewed 

several hundred mortgage broker 

advertisements and other 

promotional materials and required 

more than 200 firms to withdraw or 

amend misleading advertising. We 

have started enforcement 

investigations in the most serious 

cases. Since we published our 

findings, our sampling shows 

around 90% of mortgage broker 

advertisements in the national press 

meet our requirements, while 

compliance among broker websites 

rose from 52% to 71%. For general 

insurance, we reviewed press 

advertisements from 57 firms selling 

motor, home and travel insurance. 

More than half of motor insurance 

advertisements and a quarter of 

home insurance advertisements with 

savings claims were either unclear or 

misleading. We asked firms’ senior 

management to take urgent action to 

improve standards and our sampling 

shows a positive response, with only 

6% of general insurance press 

advertisements now being deficient. 

Soundly managed and 

adequately capitalised 

firms who treat their 

customers fairly 

Our TCF initiative is an important 

example of our principles-based 

approach to regulation. In July 2006 

we set out the six key TCF 

outcomes for retail consumers which 

we want to achieve. Our overall aim 

is that all firms treat their customers 

fairly in all parts of their business 

and throughout the product lifecycle 

– product design, marketing 

and promotion, sales and advice, 

after-sales information, and 

complaints handling. Much of our 

wider thematic and project work is 

designed to test how far firms are 

delivering these outcomes. 

The following section sets out the 

progress we have made in our TCF 

work, including examples of 

supervision and enforcement case

28 



studies, and outlines some of the 

project and thematic work we have 

carried out to improve fair treatment 

of customers in the areas of quality 

of sales and advice, complaints 

handling and unfair contact terms. 


We have published a range of 

materials, including case studies and 

examples of good and poor practice, 

to help firms understand what TCF 

means in practice. We have also 

provided industry training and will 

continue to engage with the industry 

through our TCF Consultative 

Group. In September 2006 we 

published a Discussion Paper setting 

out our views on the TCF 

responsibilities of product providers 

and distributors. For small firms we 

have produced a simple selfassessment 

tool and published a 

suite of new TCF web pages. 

To encourage firms lagging behind 

in their TCF work, we set a target 

for firms to have reached at least the 

implementing stage of their TCF 

work in a substantial part of their 

business by the end of March 2007. 

An encouraging number of firms 

successfully met the deadline, which 

shows that senior management in 

these firms remain committed to 

making progress with TCF. 

However, a sizeable number of firms 

failed to meet the March deadline. 

We can place only limited reliance 

on the senior management of these 

firms and will intensify our 

supervision of them, and will use 

enforcement action where warranted. 

In our submission to the Banking 

Code review we encouraged the 

Banking Code Standards Board to 

adopt an overarching fairness 

principle. This should lead to fairer 

outcomes for consumers and reduce 

regulatory burden by reducing the 

need for detailed rules. We are also 

investigating whether banks are 

handling complaints about charges 

on unauthorised overdrafts fairly. The 

OFT is currently investigating 

whether the level of these charges is 

fair and have announced a market 

study into retail bank pricing to 

assess wider questions about 

competition and price transparency in 

providing personal current accounts. 

In June 2006 the ABI published a 

good practice guide to help firms 

improve standards, transparency and 

fairness for unit-linked 

policyholders. We worked closely 

with the ABI to produce the guide 

and will take compliance with the 

guide into account in our risk 

assessment of firms. 

We visited a firm to assess its progress in implementing a TCF strategy. The 

firm did not have a structured approach to applying its TCF policy, had not 

carried out a comprehensive gap analysis and had weak TCF management 

information. Following our visit the firm agreed to appoint a TCF champion, 

carry out a gap analysis, overhaul its TCF management information and 

appoint a Group Board member as a TCF sponsor. 

In August 2006 we fined Hoodless Brennan £90,000 for unacceptable sales 

practices and failing to treat its customers fairly when selling certain 

shares to its private customers on 12 June and 25 July 2003. Its sales 

practices included persuading customers to buy stock when they were not 

ready to do so and persuading customers to take more stock than they 

appeared to want. Brokers also used information about a contract that was 

not in the public domain as an inappropriate sales aid to persuade 

customers to buy shares. The fine reflects the fact that only a small number 

of customers were affected and that these customers suffered no actual 

financial detriment. The fair treatment of customers must be part of a firm’s 

corporate culture; we will not tolerate sales practices that do not pay 

attention to the interests or needs of consumers. 

A large insurance firm had difficulties in ensuring that it was operating 

policies in line with the stated terms and conditions of one of its 

products. We asked the firm to address the problem and to assure us that it 

did not indicate wider failings. The firm carried out a review across its 

product range and found similar problems. The firm is paying compensation 

to all customers affected and has improved its product development and 

review processes. 

In November 2006 we fined Capital Mortgage Connections £17,500 for 

failing to treat its customers fairly. The firm generated 85% of its business 

by cold calling and was unable to demonstrate that it gave appropriate 

pricing information on the accident, sickness and unemployment policies it 

sold. Most of these policies were sold on a single premium basis and the 

firm was unable to demonstrate that it advised its customers of the 

potentially cheaper monthly option. This is the first time we have taken 

action against a firm for cold calling.



29 

Closed with-profits funds remain high on our supervisory agenda and we 

continue to monitor the extent to which the senior management of closed 

life funds treat their customers fairly. There has been some progress: some 

firms have adjusted their investment strategy to better reflect the 

expectations and promises made to policyholders, generating increased 

returns for policyholders; other firms are using outsourcing to achieve 

economies of scale and reduce costs; and we have also seen some 

improvements in policyholder communications, although the overall standard 

remains poor. We have also held discussions with firms about their charges 

for guarantees and their plans for fair distribution of assets in run-off. 

Quality of sales and advice 

Some firms selling payment 

protection insurance (PPI) are still 

failing to treat their customers fairly. 

We have worked with the OFT and 

trade associations and have carried 

out further thematic work on sales 

standards. In October 2006 we 

published our findings and asked 

firms to act on them. Where we 

found continued evidence of poor 

selling practices, we required 

individual firms to undertake 

remedial action and to report 

progress to us. We also gave 

feedback tailored to small firms 

operating in this market, such as 

motor dealers, through roadshows 

and our small firms’ web pages. In 

January 2007 we announced a third, 

extensive review of PPI sales, 

involving new and follow-up visits 

to firms and mystery shopping, 

designed to improve standards in the 

PPI market. Our Moneymadeclear 

website provides impartial 

information on PPI and highlights 

questions which consumers should 

consider before buying it. 

We have taken enforcement action 

against nine firms for breaches in 

relation to the selling of PPI policies. 

These fines total £1.6 million but the 

overall costs to firms of remedial 

programmes and compensation are 

significantly higher. Firms are 

contacting over 1.3 million 

consumers and, where appropriate, 

will offer them compensation. We 

have publicised the findings of our 

enforcement investigations to raise 

awareness in the market of the 

standards we expect. 

We carried out thematic work to 

assess the extent to which 

investment firms’ processes allow 

them to treat their customers fairly 

when giving investment advice. We 

visited a representative sample of 50 

firms and carried out mystery 

shopping on a further 50 firms. We 

identified several areas for 

improvement including standards of 

training and competence, processes 

for determining customers’ needs 

and risk appetites, systems and 

controls for monitoring the advice 

process, customers’ options on 

paying for advice and suitability 

letters. We published the results of 

our work in July 2006, including 

examples of good and poor practice, 

and contacted around 10% of our 

small investment firms to draw their 

attention to our findings. 

In January 2007 we published the 

findings of our review of the quality 

of the advice process in over 250 

firms active in the mortgage market. 

Only one-third of the firms we 

sampled had robust processes in 

place to give customers suitable 

advice, and we found scope for 

improvement in all aspects of the 

advice process. Our findings differed 

depending on the size of the firm; 

small firms need to implement robust 

processes, while larger firms generally 

have robust processes in place but 

need to be able to demonstrate that 

they are using them. We produced 

good and poor practice guides 

highlighting key actions for firms 

and have referred firms with 

significant failings to enforcement. 

One of the findings of our thematic work was that some single premium PPI 

contracts included terms which meant that customers would not be entitled 

to a refund of premiums if they chose to cancel the policy early. We were 

concerned that these terms were unfair or unclear under the Unfair Terms in 

Consumer Contracts Regulations 1999. Working with trade associations, we 

secured a commitment from the industry that firms will not apply nil refund 

terms for existing customers and will amend the refund terms in contracts 

for new customers. We published this agreement in March 2007. 

In February 2007 we fined Trigon Pensions Limited £10,500 for not 

monitoring the advisers effectively in its appointed representative, Trigon 

Financial Services. Trigon’s failures mirrored some of the main failings found 

in our thematic review of investment advice. 

In 2006 we fined three mortgage brokers (Rainbow Homeloans Ltd 

£35,000, Best Advice Mortgage Network Limited £7,000 and Home & County 

Mortgages Limited £52,500) for failings in connection with the sale of 

regulated mortgage contracts and the handling of customer complaints. In 

all three cases, as well as paying financial penalties we required the 

mortgage brokers to pay for reviews of past business to assess the 

suitability of advice given to consumers.

30 



During the year we carried out 

thematic work to assess standards of 

sales in lifetime mortgages following 

improvements we recommended in 

2005. We found that problems 

remained in a number of areas and 

in January 2007 we published 

examples of good and poor practice 

to help firms identify areas for 

improvement. We also warned firms 

that they need to ensure their advice 

meets our requirements, regardless 

of how few lifetime mortgages they 

sell. In addition, we updated our 

consumer factsheet, Raising money 

from your home, to help consumers 

identify the issues they should think 

about when considering taking out a 

lifetime mortgage. 

We concluded our investigation into 

sales of appropriate personal 

pensions (policies used to contract 

out of the state second pension 

(S2P)). We found no evidence of 

widespread mis-selling; however, we 

identified around 1.5% of sales 

made to consumers who were above 

the age parameters set by individual 

firms. As such sales were generally 

not typical practice at the time it is 

possible that these consumers may 

have been wrongly advised to 

contract out, although there are a 

number of reasons why it may have 

been appropriate for them to do so. 

We published a step-by-step guide to 

help consumers who may have been 

affected, explaining the 

circumstances in which they may 

have grounds for complaint and, if 

so, what to do next. We also 

committed to continuing to monitor 

the number of complaints received 

by the FOS and to follow up with 

individual firms as part of our 

continuing supervision. 

Complaints handling 

In October 2006 we published 

proposals for new, principles-based 

rules on complaints handling. The 

new rules focus more clearly on 

firms’ central obligation to treat 

complaints fairly and promptly. 

As part of our thematic work we visited a firm with a large sales force. In 

the light of our findings the firm is making several improvements to its 

lifetime mortgages sales practices. It is expanding its product range to 

improve consumer choice and is retraining advisers to improve standards in 

fact-finding, product recommendations and suitability letters. The firm has 

also made it compulsory for all administration staff to pass a lifetime 

mortgages exam to improve their understanding of the market and the 

firm’s procedures. 

During a risk assessment of a firm we found evidence of poor complaints 

handling procedures in all areas of its business. We asked the firm to carry 

out an internal audit review and for assurance from the firm’s senior 

management that improvements had been implemented. A follow-up visit 

to the firm confirmed the necessary improvements had been made and 

complaints were being handled promptly and fairly. 

During 2006 we took action which led to the withdrawal of authorisation 

from four firms for failing to comply with Financial Ombudsman Service 

(FOS) awards. Two of these firms referred their case to the Financial 

Services and Markets Tribunal. The Tribunal decided that the authorisation 

of two sole traders – Neil Haworth and Abbex Insurance – should be 

cancelled. Implementing FOS decisions is an important part of TCF and we 

will continue to take action against firms that refuse to comply. 

Complaints returns for 2006 showed 

that over a 12-month period firms 

had dealt with over 2.7 million 

complaints from consumers under 

our rules, closed 89% of complaints 

within the target of eight weeks, 

upheld 45% of complaints and paid, 

on average, £1,126 in redress per 

complaint upheld. 

We continued to pursue the 

mortgage endowment complaint 

handling strategy we launched in 

July 2005, focusing on the speed 

and quality of complaint handling in 

the worst performing firms. This 

work culminated in 14 firms 

reviewing over 100,000 previously 

rejected complaints; two thirds of 

these were decided in the consumer’s 

favour and redress of £128 million 

was paid. Our work has also 

delivered wider improvements in 

handling of mortgage endowment 

complaints, with a substantial 

increase in the number of complaints 

addressed by firms within eight 

weeks, and a fall in the number of 

firms’ decisions overturned by the 

FOS. In addition, in response to the 

time-barring of complaints becoming 

more widespread, we reviewed 

firms’ approaches and in most cases 

found that their procedures were 

fair. Where they were not, we 

required them to review relevant 

complaints. Overall, the industry has 

reviewed over 1.8m endowment 

complaints, and paid redress to 

consumers of more than £2.7bn. 

Unfair contract terms 

Using our powers under the Unfair 

Terms in Consumer Contracts 

Regulations 1999, during 2006 we 

found 14 cases of unfair contract 

terms in standardised customer 

contracts. We have published details 

of these unfair terms on our website 

and all firms should take our 

findings into account when drafting 

and reviewing their terms and 

conditions.



31 

Unfair contract terms 

The statement of good practice on mortgage exit administration fees we 

published in January 2007 will benefit millions of consumers. The 

statement contained a practical solution, endorsed by the Council of 

Mortgage Lenders, to prevent firms unfairly increasing mortgage exit 

administration fees. A number of firms have put aside reserves to cover the 

cost of compensation in relation to these fees. 

In September 2006 we published a statement from the Building Societies 

Association (BSA) about a model term which was used by several building 

societies in their contracts. This term potentially restricted customers’ 

access to their savings accounts. The BSA agreed to amend the term and 

anticipates that this could benefit about 15m savers. 

In September 2006 Scottish Widows Bank plc agreed to amend a term in its 

lifetime mortgage contracts to allow customers (rather than Scottish 

Widows) to decide what to do with any insurance money received if their 

property suffered damage. This affected at least 32,000 of their customers. 

We believe about 30 other providers of lifetime mortgages have similar 

terms and we encourage them to take this agreement into account. 

During a risk assessment visit we identified deficiencies in a firm’s 

corporate governance arrangements, its systems and controls and its 

arrangements for managing conflicts of interest. A lack of balance on the 

Board between executive and non-executive directors and weak controls 

allowed the Chief Executive Officer to exert a dominant influence over the 

firm. Following our visit, the firm reviewed the structure and membership of 

the Board and the accountability of the executive directors. The firm now 

has a much stronger governance and control structure. 

In January 2007 we fined W Deb MVL (formally Williams de Broe) £560,000 

for breaches of our Principles for Businesses. Over a three-year period, 

failings in its senior management arrangements, systems and controls 

resulted in poor accounting systems and poor client money protection. 

The failings led to a combined provision of £66.3 million being made in its 

accounts for 2004 and 2005 for amounts viewed as irrecoverable. 

We found widespread control failings in a firm which had moved into 

unfamiliar markets. The extent of these failings meant the firm’s solvency 

position had been weakened and we agreed the firm would stop taking on 

new business until it improved its systems and controls. In response to an 

independent expert’s findings, the firm reassessed its strategy and improved 

its risk management. This has strengthened the firm’s solvency position. 

Soundly managed firms 

We continue our work to ensure 

firms are soundly managed. Our 

information from risk assessments 

undertaken during the year has 

shown a decline in the number of 

significant risks relating to the 

sound management of firms. We 

believe this is an indication of the 

effectiveness of our risk-based 

supervisory work, with firms 

increasingly taking positive steps to 

meet our standards. 

Over the last year we have taken a 

more principles-based approach to 

our corporate governance 

discussions with firms; we expect 

firms to be able to show how their 

governance arrangements deliver 

effective oversight and scrutiny of 

their business. Where we have 

confidence in a firm’s governance 

arrangements we are also placing 

greater reliance on their senior 

management to manage regulatory 

risks, which means that wellmanaged 

firms can expect less 

regulatory intervention. 

Through our supervisory work with 

firms we also seek to gain an 

understanding of their strategy. This 

helps us to identify the business risks 

they face and assess the extent to 

which they have controls in place to 

manage these risks. It also helps us 

to understand what impact external 

events, for example changes in 

economic conditions, have on their 

risk profile. We expect firms to be 

able to demonstrate that they 

understand their business risks and, 

where appropriate, have plans to 

mitigate them.

32 



Small retail firm supervision 

About 18,000 of the firms we 

regulate are small retail firms. In line 

with our risk-based approach we 

collect and analyse data from firms 

and other sources to gain a good 

understanding of the firm and the 

type of business done. We analyse 

and interrogate this information 

using an innovative set of systems 

and business processes to prioritise 

risks (both individual and crossfirm) 

to our objectives. We use a 

range of supervisory tools to mitigate 

these risks by taking reactive action 

on crystallised risk in individual 

firms and pre-emptive action on 

cross-firm risks. Typical supervisory 

tools include correspondence, field 

visits, desk-based reviews, project 

work, and enforcement. A key 

element to our supervision of small 

firms is to maximise the impact of 

our actions using targeted external 

communications to help them deliver 

better outcomes for consumers. 

Risk-based and principlesbased 

regulation 

Improving policy 

During the year we made several 

changes to our rules consistent with 

our move to principles-based 

regulation, replacing detailed rules 

with high-level ones and putting the 

onus on firms’ senior management 

to achieve desirable outcomes. We 

also reviewed the effectiveness of 

our existing general insurance, 

mortgage, basic advice and 

depolarisation rules, and the 

RU64 rule. 

In October 2006 we published two 

Consultation Papers proposing a 

series of changes to simplify our 

conduct of business regime for 

investment businesses and, at the 

same time, to implement MiFID (see 

Section one). Significant 

Making it easier for small retail firms to do business with us 

We are aware that regulation can pose challenges, both in terms of resource 

and finance, to small retail firms in particular. We have developed several 

ways to raise standards and change the behaviour of these firms while 

minimising the burden on them. For example, we carried out 659 telephone 

surveys to discuss progress towards the end of the March deadline for 

implementing TCF and we contacted 400 firms to tell them about lessons 

learned from our quality of investment advice work. 

In addition to our Firm Contact Centre, there are a number of resources 

available to small firms to help them understand our requirements. Our 

web pages for small firms are visited over 50,000 times a month. We have 

also hosted roadshows and surgeries for over 2,500 small retail firms and 

provided industry training to over 1,800. In addition, throughout the year 

we have published factsheets and newsletters, held focus group meetings, 

given interviews to the trade press and attended sector-related events and 

exhibitions. 

simplification is being achieved in a 

number of areas including client 

agreements, prescribed content of 

risk warnings, dealing, managing 

and client reporting. Our new 

financial promotion rules will give 

firms greater scope to develop 

consumer information that explains 

the features, risks and benefits of a 

product in a more appropriate, 

straightforward and understandable 

way. 

We introduced new rules for the 

dual pricing of collective investment 

schemes in October 2006, allowing 

it to continue as an alternative to the 

single pricing method. We set highlevel 

standards of fair pricing, giving 

firms the flexibility on how prices 

are calculated and which pricing 

method better meets the needs of 

their investors. We believe market 

forces will drive firms’ choice of 

pricing and this will encourage 

innovation. 

In March 2007 we published 

CP07/6 on Funds of Alternative 

Investment Funds, proposing to 

introduce a wider range of retailoriented 

investment products into 

the existing collective investment 

schemes regime. These would 

include, but not be limited to, funds 

of hedge funds. To make funds of 

alternative investment funds 

workable and efficient we are 

proposing a principles-based 

approach to product regulation. 

This places responsibility on the 

funds of funds managers to carry 

out appropriate checks on the 

quality of the underlying funds, 

rather than applying prescriptive 

rules-based criteria. 

In March 2007 we also published a 

Consultation Paper proposing 

changes to the permitted links 

regime for linked long-term 

insurance. The proposed changes 

will give firms’ senior management a 

greater role in putting the correct 

levels of risk management in place to 

manage their linked business. 

In February 2007 we published 

proposals for a new Training and 

Competence Sourcebook. Our 

proposed new sourcebook applies 

only to retail business, is much 

shorter and is more user-friendly. It 

gives firms greater flexibility to 

decide how to achieve the required 

competence standards.



33 

We continued to work closely with 

the FOS to ensure that emerging 

consumer protection issues are 

identified quickly and that issues 

and queries are resolved promptly. 

In May 2006 we published a joint 

Discussion Paper on its future 

funding structure. We found broad 

support for increasing the 

importance of case fees in financing 

the FOS and for increasing the 

number of cases the FOS will 

consider before a firm starts paying 

case fees. We will consider what 

scope exists for moving in this 

direction when agreeing the FOS’s 

budget for 2008/09, taking into 

account its current budget and 

caseload projections. 

Financial Services Compensation Scheme (FSCS) 

In March 2007 we published a Consultation Paper proposing new funding 

arrangements for the FSCS. The proposals followed a rigorous review and 

were developed in consultation with an industry advisory group, which 

included representatives from trade associations, the Financial Services 

Practitioner Panel, the Smaller Businesses Practitioner Panel and the 

Financial Services Consumer Panel. 

Finding a solution has been difficult, and it has not been possible to devise 

funding arrangements which have universal support from the industry. 

However, there was general acceptance that the present arrangements were 

no longer fit for purpose. We believe the proposed model is more rational, 

fairer to the various players in the market and is more robust. It will also 

enable the FSCS to provide an enhanced level of compensation for 

unforeseeable events. We also announced our intention to consult on a 

final level of compensation funding to be made available based on 

wholesale business, which would involve contributions from firms who are 

not currently required to fund FSCS compensation payments. 

Reviewing the effectiveness of 

our policy 

We have made substantial progress 

in our review of the general 

insurance conduct of business 

regime. We published consumer 

research highlighting how consumer 

experiences and risk of detriment 

differ across different general 

insurance products. At the end of 

March 2007 we published an interim 

report proposing a differentiated 

regime, removing detailed rules for 

the sale of all general insurance 

products and introducing additional 

consumer protections for certain 

products, including payment 

protection products. 

In September 2006 we published the 

results of the first stage of our 

review of the effectiveness of our 

mortgage rules. We found that 

consumers are actively shopping 

around for their mortgages, and are 

using the Key Facts documents to 

compare mortgages, consider the 

risks of mortgage products and to 

decide if a mortgage is right for 

them. This shows that our rules are 

beginning to deliver the right 

outcomes for consumers. 

We have completed the first stage of 

our review of the basic advice 

regime. This regime is designed to 

provide a simpler, quicker and lowercost 

form of advice for consumers 

buying the government’s suite of 

‘stakeholder’ savings and investment 

products. The results suggest that 

the basic advice market has not 

developed as expected and we 

recently announced a further review 

to find out why. 

We have continued to review the 

effectiveness of depolarisation, 

focusing on the disclosure 

requirements – the Menu and the 

Initial Disclosure Document. 

Following consultation with the 

industry we decided to focus on 

these requirements because they go 

beyond what is required under MiFID 

(see Section one). Any changes we 

propose as a result of this review 

will take into account the extent to 

which the information disclosed 

results in real benefits for consumers 

and be compatible with our move to 

more principles-based regulation. 

The RU64 rule requires advisers who 

sell personal pensions to explain to 

customers why they consider the 

product to be at least as suitable as 

a stakeholder pension. Following 

developments in the government’s 

pension reforms and careful 

consideration of the responses to 

our 2005 consultation, in February 

2007 we announced our decision to 

retain this rule. We concluded that 

retaining this rule is necessary to 

secure the appropriate degree of 

protection for consumers.

34 



New rules following changes to 

our regulatory scope 

We published our final rules for the 

regulation of Home Reversions and 

Islamic law-compliant Home 

Purchase Plans in October 2006. 

They help older consumers looking 

to release equity from their homes 

by extending protection over the 

whole equity release market and 

provide fairer treatment for 

consumers wanting to buy their 

homes in way that is compliant with 

Islamic law. We worked closely with 

the industry, consumer groups and 

representatives from Muslim 

communities in designing the rules 

and preparing for implementation 

on 6 April 2007. We have also 

published new consumer education 

materials to raise consumer 

awareness of the new rules. We 

received 437 applications from new 

and existing firms to carry out these 

types of business. 

From April 2007 all personal 

pension schemes, including selfinvested 

personal pension schemes 

(SIPPs), are within our regulatory 

scope. Following consultation with 

industry and consumer groups we 

published new rules in September 

2006, giving firms six months to 

prepare for implementation. 

Bringing all personal pensions into 

our scope will ensure that all 

personal pension policyholders 

benefit from the same level of 

protection. We also expect that 

broadening the range of personal 

pension providers will increase 

competition and lead to innovation. 

We received 143 applications to 

operate personal pension schemes, 

including SIPPs, and increased the 

regulatory permissions of 45 

operators of stakeholder pension 

schemes to cover personal pensions. 

We also changed the permissions of 

over 7,000 regulated firms to bring 

their personal pension schemes 

business within our scope. 

Working with other domestic 

regulators 

The government’s proposals on 

pension reform include a national 

pension scheme which will be 

treated as an occupational pension 

scheme. We worked closely with the 

Department for Work and Pensions 

(DWP), the Treasury and the 

Pensions Regulator to advise the 

government on the regulatory 

impact of their proposals. We are 

also working with the DWP on its 

review of the institutions involved in 

the regulation of pensions, the scope 

of which includes the boundaries 

between us and the Pensions 

Regulator. 

In April 2006 we published a Joint 

Action Plan with the OFT which 

sets out how we will work together 

more on matters of shared interest. 

The Plan aims to reduce the 

administrative burden on firms, 

improve the way in which we make 

information available to consumers 

and help deliver risk-based 

regulation. During the year we have 

worked together in areas such as 

unfair contract terms and payment 

protection insurance. We have also 

taken steps to strengthen our overall 

liaison and consumer 

communications arrangements. We 

are committed to exploiting further 

opportunities for better joint 

working, for example in our review 

of the retail distribution system, and 

to build on the enhanced 

communications between the two 

organisations. 

Influencing European 

policymaking 

The European Commission is 

currently reviewing the effectiveness 

of the Simplified Prospectus, which 

is widely considered to have failed to 

meet its objective of providing 

information to enable consumers to 

make informed decisions about 

investing in collective investment 

schemes. We have been working 

with the Commission, other 

Member States and trade bodies to 

identify the issues and we co-chair a 

CESR sub-group responsible for 

recommending improvements. 

We have worked closely with 

stakeholders to influence developing 

policy on mortgage regulation in 

Europe. A more integrated European 

mortgage market may offer 

significant advantages, but evidence 

suggests that introducing legislation 

may not lead to greater integration, 

and could risk both competition and 

product diversity. We are 

encouraged by the Commission’s 

decision to delay the White Paper to 

allow for further analysis, including 

a report by mortgage funding 

experts. We agree with the 

conclusion of these experts, that 

market-led mortgage funding 

improvements can deliver significant 

benefits. 

Through our role in CESR we have 

contributed to a variety of European 

work to improve the operation of 

the Undertakings for Collective 

Investment in Transferable Securities 

(UCITS) Directive. We made 

substantial progress in influencing 

the European debate on the 

proposals to revise the Directive, 

and the European Commission’s 

White Paper, published in November 

2006, reflects the UK’s priorities for 

change. During the year we also 

contributed to CESR’s work on the 

rationalisation of the notification 

procedure for EU cross-border fund 

sales and jointly chaired CESR’s 

working group on the definition of 

the eligible assets for UCITS.

Section three – Improving our business capability and effectiveness 


37 

Improving our business 


Introduction 

Improving our business capability 

and effectiveness encompasses the 

investment we make in our people 

and information systems and in 

improving our processes to make it 

easier for firms, consumers and 

other stakeholders to do business 

with us. During the year we have 

made improvements in areas that 

directly affect our stakeholders, such 

as core regulatory transactions, 

integrated regulatory reporting and 

contact centres. Overall, the 

standards we use to measure our 

performance show that the level of 

service we offer our stakeholders 

continues to improve. 2006 was also 

the first full year of using our new 

enforcement executive settlement 

procedures, which have enabled us 

to achieve more prompt redress and 

remedial action. 

As outlined elsewhere in this report, 

we are making progress towards 

principles-based regulation. To help 

us measure and report on our 

effectiveness in delivering regulatory 

outcomes against our strategic aims 

we have developed an outcomes 

performance report (OPR). In April 

2007 we published an overview of 

the OPR and further detail will 

follow later this year. We have also 

carried out work to assess the costs 

and benefits of regulation to help us 

strike the right balance between 

discharging our statutory duties and 

avoiding unjustified costs. 

Costs of regulation 

In 2005, together with the 

Practitioner Panel, we commissioned 

Deloitte to carry out a study of the 

costs that firms incur in complying 

with our rules. The study focused on 

three sectors (institutional fund 

management, corporate finance, and 

retail investment and pensions 

advice) and estimated, rule by rule, 

the costs which firms considered 

they would not incur other than to 

comply with our requirements 

(‘incremental costs’). 

The Deloitte report was published 

in June 2006. The study confirmed 

that much of what regulation 

requires is good business practice. 

Most of the rules identified as 

imposing the highest incremental 

costs were in the retail investment 

and pensions advice sector and 

related to point-of-sale disclosure. 

No individual rules imposed costs 

of more than minimal significance 

in the two wholesale sectors, 

supporting the findings of other 

studies that regulatory costs in the 

UK are not generally seen as putting 

the UK’s wholesale markets at a 

competitive disadvantage. 

Alongside the Deloitte report, we 

published a progress report on our 

Better Regulation Action Plan. This 

included our plans to use the results 

of the Deloitte study to assess the 

benefits of the regulatory 

requirements that generate the 

highest incremental costs (and that, 

for example, are not required to 

remain in place as part of the 

implementation of a directive). 

Some initiatives were already under 

way, such as the simplification of 

our conduct of business rules (see 

Section two). Others we started 

work on during the year, including 

studies of the benefits associated 

with three of the highest 

incremental cost rules identified by 

the Deloitte study: suitability letters; 

reduction in yield; and the Menu 

and initial disclosure document. 

People strategy 

We continue to attract high quality 

people through our graduate scheme 

and experienced hire programme. In 

September 2006 56 graduates 

started our graduate scheme and for 

the first time we entered The Times 

Top 100 Graduate Employers list. 

Of the 43 undergraduates who 

joined our summer internship 

scheme in 2006, 26 will return on 

our graduate programme. We have 

also had continued success in 

recruiting experienced people, with 

307 joining us during the year. 

Annual turnover for the financial 

year remains relatively low 

compared with the financial services 

sector, at 11%.

38 



We continue to take a total 

remuneration approach to reward, 

taking into account people’s salary, 

bonus and pension. We targeted 

median market pay through a series 

of ‘job families’, which resulted in a 

4.6% increase in salary costs. This is 

in line with trends in the highly 

competitive employment markets 

and, in particular, reflects pressure in 

the risk and compliance markets. We 

have piloted and plan to roll out 

additional awards to recognise 

innovative performance that reduces 

costs and improves the efficient and 

economic use of our resources. 

During the year we increased our 

spending on training, allocating an 

additional £1 million to providing a 

five-day residential training course 

on ARROW II for all front-line 

supervision staff (800 in total). The 

course focused on developing 

technical risk-assessment skills as 

well as softer skills such as feedback, 

interviewing and relationship 

management. Feedback from firms 

following subsequent supervision 

visits suggests this training has 

delivered real improvements in the 

way our people assess and discuss 

risk with firms. We also delivered a 

programme of sector-based training 

on financial crime to over 400 staff. 

Our work on improving the 

performance of our people 

continues. We have developed a 

more robust performance 

management framework and focused 

on developing the leadership 

capabilities of our senior 

management team. 

Improving our technical 

infrastructure 

This year we have made 

considerable progress in upgrading 

our information systems and 

technology. These improvements are 

necessary if we are to improve our 

productivity, deliver principles-based 

regulation and achieve our target of 

an industry standard IT function by 

September 2007 and best in class by 

September 2008. 

We have recently signed contracts to 

outsource our IT infrastructure to 

Fujitsu and our application 

management services to Xansa. This 

will enable us to be more flexible in 

response to changing business needs 

and will improve our overall IT 

capability and effectiveness. 

In addition, in 2006 we entered into 

strategic alliances with three IT 

development partners (Capgemini, 

Tata Consultancy Services and 

Xansa). We are working with them 

Integrated Regulatory Reporting (IRR) 

on several major programmes, 

including a long-term strategic 

reporting platform for Integrated 

Regulatory Reporting and 

delivering improvements to our 

electronic application and 

notification forms. 

During the year we developed a 

knowledge management strategy for 

the efficient and effective use of the 

information and knowledge we hold 

throughout the organisation. We 

have started work on designing a 

common system for holding data 

and developing a comprehensive 

data search tool. We are also 

improving our records management 

procedures and have held 

compulsory training on this for all 

our people. Improvements in this 

area will also benefit firms, 

particularly in a more principlesbased 

environment when our people 

will need full access to information 

to give consistent and timely 

guidance. 

We took industry views into account before finalising our new reporting 

arrangements, which we published in December 2006 and January 2007. 

Our new arrangements will: 

• ensure that reporting is a risk-based and proportionate tool for 

monitoring and mitigating risks to our objectives, taking into account 

the mix of regulated business a firm undertakes; 

• align reporting, as far as possible, with the information that firms’ 

management use to run their businesses; 

• take into account the impact of prudential changes arising from the CRD 

and MiFID (see Section one); and 

• introduce reporting requirements for operators of personal pension 

schemes and Home Reversion/Home Finance activity, both of which 

come under our regulatory scope in 2007. 

We anticipate that our new requirements will reduce the volume of data 

reported by most firms, with increases for investment management firms as 

shown in Table 3.1.



39 

Table 3.1 

Type of firm 

Banks 

Building societies 

Securities and futures firms (subject to the CRD) 

Average change in volume of data reported 

Securities and futures firms (not subject to the CRD) 

Investment management firms (subject to the CRD) 

Investment management firms (not subject to the CRD) 

45% reduction 

25% reduction 

55% reduction 

77% reduction 

410% increase 

28% increase 

Note: The above figures are drawn from the full impact analysis published as an addendum to 

PS07/1 Integrated regulatory reporting (IRR): Certain investment firms. They represent changes 

in volume of data at an individual firm level and are based on an average between the two 

methods used in the full analysis. 

For banks, building societies and securities firms the reporting requirements 

have reduced compared with those required under the previous regulatory 

regimes, even taking into account the impact of the CRD. For investment 

management firms, the increase in reporting by both CRD and non-CRD 

firms reflects the under-reporting required of these firms in their previous 

regulatory regimes. 

The proportion of our future reporting requirements directly attributable to 

the need to monitor compliance with the CRD is significant; over 30% for 

credit institutions and 80% for investment firms. The risk-based approach 

to setting capital requirements under the CRD gives firms greater flexibility, 

but is more sophisticated and so requires additional monitoring and 

reporting requirements depending on the complexity of an individual firm’s 

business. We have taken a proportionate approach to the reporting 

requirements and collect significantly less data than our EU counterparts. 

IRR is already in place for a large number of firms (mainly mortgage and 

general insurance intermediaries and retail investment advisers) through 

submitting the Retail Mediation Activities Return (RMAR), the Mortgage 

Lending and Administration Return (MLAR) and the Complaints return. 

Firms have continued to become more familiar with these returns and this 

has been reflected in the number of returns submitted on time, which has 

improved from 76% in 2005/06 to 82% in 2006/07. In 2006/07 we 

cancelled the permissions of 98 firms who failed to submit returns and 

charged around 3,000 firms an administrative fee for submitting late 

returns. In April 2007 we cancelled the permissions of two firms who had 

repeatedly failed to submit their RMARs on time. 

During the year we completed the first phase of our review of the 

effectiveness of the RMAR, which is submitted by over 90% of the firms 

we regulate. The average number of queries on the RMAR to our Firm 

Contact Centre is half the figure for the previous year. Feedback from firms 

shows that most concerns were about the capital section of the RMAR. We 

have carried out targeted market research to gain a more detailed 

understanding of the issues, and we will use the results of this to further 

improve training and guidance for firms. 

FSA Register 

During the year we have made a 

number of improvements to the FSA 

Register, which is available on our 

website and contains information on 

regulated firms and individuals. We 

have received positive feedback on 

these improvements from users. 

We have: 

• improved the response times of 

the Register during busy periods 

(the number of times users have 

not been able to view the 

Register has reduced from 

15,700 for the four months 

December 2005 to March 2006 

to 53 across the same period to 

the end of March 2007); 

• enhanced the facilities for 

searching for firms, individuals 

and collective investment 

schemes; 

• added additional historical 

information and information on 

appointed representative firms; 

• introduced a ‘Register News’ 

section to keep users informed of 

service availability and Register 

developments; and 

• enabled users to print a copy of 

individual Register pages. 

Mutuals registration system 

In addition to our responsibilities 

under FSMA we also register and 

record documents on behalf of 

mutual societies, and in May 2006 

we introduced a new mutuals 

registration system. We developed 

the system following discussions 

with the industry and were assisted 

by Co-ops UK, a mutuals sector 

sponsoring body. Our new system 

improves the processing of 

applications for registering and 

submitting annual returns and is the 

first electronic register of mutual 

societies to be made available to the 

public.

40 



Service standards 

Chart 3.1: Performance against service standards 

We are committed to improving our 

service to firms, consumers and 

other stakeholders. Our service 

standards apply to all aspects of our 

work including replying to 

correspondence, answering the 

telephones in our Contact Centres 

and regulatory decisions. We publish 

a twice-yearly account of our 

performance against our service 

standards on our website and in 

October 2006 we improved the 

format to make it easier to 

understand. During the year we 

continued to see an improvement in 

all the areas of our service that we 

measure (see Chart 3.1). 

100% 

80% 

60% 

40% 

20% 

0% 

Met (100%) 

Not Met (>90%) 

Not Met (



41 

During the year our Firm Contact 

Centre received 111,558 calls and 

59,983 items of correspondence 

(compared with 149,172 and 48,901 

in 2005/06). As Chart 3.2 shows, 

the most common queries related to 

regulatory reporting and Firms 

Online, the electronic system we use 

to collect returns from mortgage and 

general insurance firms. The RMAR 

and MLAR returns accounted for 

over half of the calls in this category, 

while the Firms Online system 

accounted for a further 30%. 

Queries on our Handbook fell 

considerably from 45,947 in 

2005/06 to 12,520 in 2006/07, 

following improvements to make it 

more accessible and easier to 

understand. 

Consumer Contact Centre 

During the year the Consumer 

Contact Centre received a total of 

182,989 telephone calls and 28,254 

items of correspondence (see Charts 

3.3 and 3.4). 

Chart 3.3 shows the number of 

telephone queries received on three 

broad subject areas. The number of 

queries about the mis-selling of 

mortgage endowment policies has 

nearly halved during the last year 

(59,033 compared with 100,594 in 

2005/06). This may be the result of 

our work with firms during the year 

to improve the speed and quality of 

their mortgage endowment 

complaints handling (see Section 

two) and our work to raise 

consumers’ awareness of how they 

can take action in this area. 

Chart 3.2: Telephone calls received in the Firm Contact Centre split by topic 

1 April 2006 to 31 March 2007 

60,000 

50,000 

40,000 

30,000 

20,000 

10,000 

0 

Chart 3.3: Telephone calls received in the Consumer Contact Centre split by topic 


100,000 

90,000 

80,000 

70,000 

60,000 

50,000 

40,000 

30,000 

20,000 

10,000 

0 

3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

500 

0 

8,368 

Authorisation 

queries 

3,477 

Credit 

unions 

92,006 

Other investment 

26,256 

General 

queries 

2,228 

Fees 

invoices 

59,033 

Mortgage endowments 

56,528 

Firms Online 

& regulatory 

reporting 

12,520 

Handbook 

queries 

31,950 

2,181 

Revenue 

queries 

Mortgage and general insurance 

Chart 3.4: Correspondence received in the Consumer Contact Centre split by topic 


Authorisation enquiry 

Boiler room project 

Charges 

Company affairs 

Consumer credit 

Customer service/administration 

Financial advice 

Firm complaints procedure 

Fraud 

FSA rules 

FSA website 

Insurance claim 

Mis-selling 

Other (Specify) 

Outside CCC remit 

Publications request 

Register 

Register check 

Tracing firms 

Training & competence 

Unauthorised firm

42 



Core regulatory transactions 

Regulatory activity 

We received high volumes of 

applications and notifications for 

our eight core regulatory 

transactions (see Table 3.2). 

The most notable increases were in 

corporate authorisations 

applications from financial advisers, 

banks and life insurance companies. 

Customer satisfaction 

The customer satisfaction research 

we carry out on our core regulatory 

transactions helps us to identify 

areas for improvement. The latest 

customer satisfaction figures show 

an improvement in our performance; 

six of the seven core regulatory 

processes measured achieved 

satisfaction levels above our target. 

Improving customer satisfaction 

with the authorisations and 

cancellations processes has been 

particularly challenging; for the first 

time we have met our target on 

authorisations and, following a 

number of improvements to the 

cancellations process, we expect to 

meet our target in 2007/08. 

Following feedback from firms we 

have made the following changes to 

our processes. 

• Improved authorisation packs – 

we have developed ‘build your 

own’ application packs for 

different types of firms, including 

securities and investment 

management firms, banks and 

personal pension scheme 

providers. These packs are 

shorter, easier to use and should 

reduce costs and administrative 

burdens for firms. 

• New welcome pack for newly 

authorised firms – this provides 

key information for new firms, 

for example on regulatory 

reporting requirements and fees. 

Table 3.2 

Core regulatory transactions 

• Faster decisions on authorising 

firms – feedback from firms 

showed that this was a key driver 

of customer satisfaction. We have 

shortened the average time taken 

to process an application for 

authorisation from three to two 

months. 

Received during Received during 

06/07 05/06 

Corporate authorisations 2,193 1,982 

Waivers 1,377 999 

Variations of permission 4,215 2,044 

Changes of controller 1,473 1,288 

Cancellations 2,586 3,088 

Passporting 1,759 5,288 

Individual approvals 48,578 45,384 

Collective investment schemes 1,526 1,165 

The increase in the number of life insurers seeking authorisation reflects 

the market entry of specialist bulk annuity insurance firms. We assessed 

the risks posed by these firms, including reviewing their financial and 

actuarial projections, while meeting applicants’ timetables for 

authorisation. 

During the year we have refused ten applications for approval. Reasons 

for refusal included failure to demonstrate sufficient competence, failure to 

be open and honest and failure to disclose previous disciplinary history or 

Court judgments. In a further eight cases we issued a Warning Notice that 

we were minded to refuse approval and the applicants withdrew. 

In November 2006 we refused to approve Stanley Olutola and to authorise 

his firm, P S Mortgages Ltd. Mr Olutola failed to disclose that he had 

previously been subject to disciplinary action by the Association of 

Chartered Certified Accountants (ACCA). The matter was referred to the 

Financial Services and Markets Tribunal, which agreed with our decision. 

Mr Olutola failed to demonstrate that he had the honesty and integrity 

required to carry out the controlled functions applied for. 

• Improved information on our 

website about applications and 

notifications – we have added 

answers to frequently asked 

questions on variations of 

permissions and passporting, 

introduced short forms for 

certain variations of permission 

and introduced email submissions 

of passporting notifications.



43 

Improvements to our 

Authorisation and 

Approvals regimes 

Following a review of our 

Authorisation manual we deleted it 

from our Handbook. Instead we 

provide firms with information on 

the authorisation section of our 

website, which can be updated 

quickly and easily. This decision was 

partly influenced by our desire to 

maintain the competitive position of 

the UK financial markets. The 

regulatory framework, and in 

particular the authorisation process, 

is a factor in determining where 

firms set up business. During the 

year we have worked closely with 

several agencies: Think London, the 

foreign direct investment agency; 

The Economic Development Office 

of the City of London Corporation; 

and a number of UK trade and 

investment offices, particularly those 

in New York, Chicago, Atlanta and 

Mumbai, to improve international 

businesses’ understanding of our 

requirements. These discussions have 

contributed to overseas companies 

choosing to set up offices in the UK 

instead of other jurisdictions. 

In 2006 we published a combined 

Feedback Statement and 

Consultation Paper on proposed 

reforms to our Approved Persons 

regime, and in January and February 

2007 we published our final Policy 

Statements. We have removed the 

requirement on firms to submit an 

annual significant management 

function report and have deleted the 

sole trader function. We estimate 

that our proposals will save firms 

around £3m a year in administration 

costs. 

Enforcement settlement 

procedures 

Following the outcome of our 

Enforcement Process Review we 

introduced new executive settlement 

procedures. 2006 was the first full 

year of using these new procedures. 

Settlement allows us to ensure 

prompt redress and remedial action, 

explain to industry the standards we 

expect and move on to focus on the 

next important issue. In 2006/07 

most enforcement cases were settled 

before reaching the Regulatory 

Decisions Committee – two-thirds of 

disciplinary cases settled and all 

cases involving a financial penalty 

settled during the first settlement 

phase, receiving the full 30% 

discount on the financial penalty. 

Further information on our 

enforcement activity can be found in 

Appendix Five of this Report and in 

the Enforcement Annual 

Performance Account, published on 

our website. 

Fees 

Payment of regulatory fees and 

levies by instalment has continued to 

be popular with firms. We have 

advertised the availability of this 

payment option through our 

website, communications with small 

firms and on the invoices we issue to 

firms.

Section four – Financial review 


45 

2006/07 Financial review 

Basis of Preparation 

This financial review is based on 

our Financial Management 

Reporting Framework as updated in 

our Business Plan 2007/08, and set 

out on page 49 of this Report. We 

use this Framework for internal 

management purposes to help 

monitor and manage our resources. 

The Framework is also designed to 

reduce the impact on fees of short 

term volatility of our costs created 

by pensions accounting. 

Net expenditure 

Cost of our Ongoing 

Regulatory Activity (ORA) 

Our net expenditure for the year 

(excluding costs associated with 

principles-based regulation) was 

£269.3m, which is £4.8m less than 

the budget we set for the costs of 

our ORA for 2006/07. The tables 

below analyse in more detail the 

actual and budgeted total costs for 

2006/07, by cost type and function. 

Our total staff costs were below 

budget as staffing levels were tightly 

controlled in line with our plans for 

reduced headcount. At the same 

time we funded an increase in 

performance bonuses (£2.0m) to 

reflect market conditions and 

incurred additional contractor costs 

(£0.8m) in the run-up to outsourcing 

our IT delivery and development. 

Table 4.1 

Reconciliation of statutory accounts to the Financial Review 

£m 

Net costs for the year per the statutory accounts 263.7 

Add: Taxation 1.5 

Net costs for the year (including taxation) 

per the statutory accounts 265.2 

Add: difference between accounting charges for pensions in the statutory 

accounts and the related cash costs of pension contributions paid 5.6 

Less: costs of implementing principles-based regulation (1.5) 

Net costs for the year of our ORA 269.3 

Table 4.2 

Net expenditure by type 

2006/07 2006/07 2006/07 

Actual Budget Variance 

£m £m £m 

Staff costs (including travel, training and recruitment 

and pension deficit reduction contributions) 217.3 218.4 1.1 

Accommodation, office services and depreciation 41.4 41.3 (0.1) 

IT costs (including IT delivery outsourcing) 12.4 10.5 (1.9) 

Professional fees – services 13.5 17.6 4.1 

Professional fees – projects 10.1 10.9 0.8 

Printing and publications and other 4.2 3.8 (0.4) 

298.9 302.5 3.6 

Sundry income (29.6) (28.4) 1.2 

Net expenditure on ORA 269.3 274.1 4.8

46 



IT costs were £1.9m higher than 

budget due to IS development and 

delivery outsource set-up costs being 

incurred earlier than planned and 

additional resources being employed 

in system development activity. 

Professional fees (services) were 

£4.1m less than budget as the net 

result of lower enforcement case 

costs being partially offset by the 

£1.5m settlement for costs in the 

Cyprotex case. Enforcement case 

costs were less than expected 

because the number of cases was 

lower, and because of the continued 

development of the early payment 

plan (which provides an incentive 

for early settlement by offering a 

discount of up to 30% on the 

amount of the financial penalty that 

would otherwise be payable). 

We managed down our professional 

fees (projects) to compensate for 

lower than expected industry 

funding of our financial capability 

work. In response to industry 

feedback we have included future 

funding of that project within our 

regular periodic fees. 

Sundry income was higher than 

expected primarily due to higher 

than expected authorisation 

volumes. 

Expenditure by business unit 

Retail Markets spent less than 

budgeted on professional fees 

(services) as noted above. Regulatory 

Services incurred additional costs 

outsourcing the IT development 

function and additional IS 

development costs through the year. 

Corporate Services and Board 

expenditure was lower than 

expected due to a combination of 

lower staff costs and reduced 

expenditure on professional fees. 

Table 4.3 

Expenditure by business unit 

Enforcement costs and 

penalties 

Our enforcement costs were £32.1m 

for 2006/07 (£35.6m in 2005/06) 

including the cost of external 

accountants and lawyers (£2.9m in 

2006/07; £5.2m in 2005/06) 

brought in to help us with large or 

complex enforcement cases. 

As in previous years, we neither 

budget for penalties arising from 

disciplinary cases nor use them to 

fund our activities. During 2006/07 

we received penalties of £14.7m 

(2005/06: £16.9m). Not all of the 

penalties relating to fee-block A.10 

could be returned last year as they 

were more than the total level of 

fees due. At the end of the year we 

therefore held a total of £15.6m of 

penalties, which will be used to 

reduce the amounts payable to us by 

relevant fee-payers in 2007/08. 

Panel costs 

Panel costs include the cost of the 

Consumer Panel (£0.5m) and the 

combined cost of the Practitioner 

and Smaller Businesses Practitioner 

Panels (£0.4m). These figures 

include the costs of our people who 

2006/07 2006/07 2006/07 

Actual Budget Variance 

£m £m £m 

Retail Markets Business Unit 104.0 105.2 1.2 

Wholesale and Institutional Markets Business Unit 75.9 75.2 (0.7) 

Regulatory Services Business Unit 59.4 56.7 (2.7) 

Corporate Services and Board 27.5 29.8 2.3 

Enforcement 32.1 35.6 3.5 

298.9 302.5 3.6 

Sundry Income (29.6) (28.4) 1.2 

Net expenditure on ORA 269.3 274.1 4.8 

support the Panels’ work, the Panels’ 

independent research, Consumer and 

Small Business Practitioner Panel 

members’ fees and expenses, and 

costs associated with the preparation 

of the Panels’ annual reports. These 

costs were slightly lower than 

budgeted for, mainly because some 

of their planned research has been 

delayed to 2007/08. 

Complaints Commissioner 

The Complaints Commissioner’s 

costs mainly comprise those of the 

Commissioner and his staff, 

accommodation and ancillary 

services. In 2006/07 those costs 

totalled £0.4m, which was in line 

with budget. 

Funding 

We are funded by fees payable by 

organisations we authorise, 

recognise, register or list. During 

2006/07, £282.1m in fees was raised 

directly from those fee-payers.



47 

Table 4.4 

Funding the FSA’s net expenditure 

Balance Sheet 

Financial strength 

The statutory accounts show that we 

had net liabilities of £81.4m at 31 

March 2007, primarily as a result of 

pension liabilities of £79.9m, 

calculated under International 

Accounting Standard 19: Employee 

Benefits (IAS 19). The pensions 

liabilities will not crystallise for 

many years and our approach to 

managing them, and to funding our 

pension deficit, is explained below. 

Notwithstanding the large deficit 

currently reported, we believe that 

we remain able to meet our 

liabilities as they fall due because of 

our statutory power to raise fees. 

Accordingly, our financial statements 

have been prepared on a going 

concern basis. Excluding the 

pensions deficit measured on an IAS 

19 basis, we had a net deficit of 

£1.5m. 

Our cash balance during 2006/07 

averaged £102.7m, totalling £47.8m 

at the year end. Detailed 

information on how we manage the 

financial risks associated with our 

pension scheme is outlined below. 

During 2006/07, we investigated 

options to improve the management 

of the risks to our balance sheet and 

to our fee-payers. That review 

included options to significantly 

2006/07 2005/06 

£m £m 

Total net expenditure for the year per the 

Financial Review 269.3 272.2 

IFRS adjustment in 2005/06 – (1.6) 

Under/(over) spend against budget 

(see reserves movement table 4.5) 4.8 (3.2) 

Excess fees over budget 

(see reserves movement table 4.5) 8.0 3.2 

Fees raised in the year 282.1 270.6 

reduce the deficit on our pension 

scheme by applying any surplus 

working capital or by borrowing 

against our future cash flow, and 

investing those funds in the pension 

scheme. As a result of that work we 

paid an additional £20m into the 

Pension Plan. We also arranged a 

£100m revolving credit facility with 

Lloyds TSB Bank plc to fund the 

costs we expect to incur in 

delivering principles-based 

regulation and overhauling our IT 

delivery and technical infrastructure. 

This allows us to spread the costs to 

fee-payers over several years. The 

price of that facility appropriately 

reflects the strength of our financial 

covenant. 

Financial management of the 

FSA’s pension costs 

Our pension scheme has two 

sections, Final Salary and Money 

Purchase. The Final Salary scheme 

has been closed to new members, 

other than staff transferring from 

previous regulators whose activities 

we have taken on, since 1 June 

1998. At 31 March 2007, 650 staff 

(31 March 2006: 745) were in the 

Final Salary scheme and 1,840 (31 

March 2006: 1,883) in the Money 

Purchase scheme. The Final Salary 

scheme is relatively immature 

compared to many such schemes, in 

that just over 12% of members of 

the scheme are pensioners. 

In our Business Plan for 2006/07, 

we committed to making an 

additional pension deficit reduction 

contribution of £6m during 

2006/07. During the year, the 

financial security of the new 

revolving credit facility enabled us to 

make an additional £20m 

contribution to our Final Salary 

pension scheme while spreading the 

cost to our fee-payers over up to 

eight years. In total therefore we 

made pension deficit reduction 

contributions of £26m towards the 

funding of the scheme during the 

year. Also, the increase in the 

corporate bond discount rate (from 

4.9% to 5.2%) reduced the deficit 

by a further £23.5m. However, a 

number of factors offset those 

decreases in the size of the deficit, 

primarily an increase in the 

longevity assumptions employed 

(increasing the deficit by £21m), 

under-performance of scheme assets 

(by around £9m compared to overperformance 

of £39m in 2005/6) 

and an increase in the r.p.i 

assumption (by around £8m). The 

under-performance is a result of 

currency movements during the year, 

rather than as a result of the 

performance of the under-lying 

assets, which was in line with 

expectations. After taking all those 

factors into account, the deficit as 

measured by IAS 19 had reduced by 

£11.4m to £79.9m. 

We continue to work with the Final 

Salary pension scheme trustee to 

secure the pension benefits of our 

employees and mitigate the risks 

arising from our Final Salary 

pension scheme. We believe that our 

approach to the management of our 

pension costs strikes an appropriate 

balance between our obligations to 

our staff and fee-payers. We will 

keep our approach under review, in 

particular to reflect the results of the 

next Scheme Specific Valuation, 

which will be performed as at 1 

April 2007 and we expect will be 

completed during 2007/08.

48 



Movement in the FSA’s reserves 

We believe that our new revolving 

credit facility provides sufficient 

financial capacity to allow us to 

meet any likely expenditure to 

address unforeseen events. 

Consequently, we have reduced our 

targeted reserves (that is the 

cumulative excess of our fees over 

our costs) from 5% (+/-2%) of the 

cost of our ORA to £nil (+/-2%) of 

the cost of our ORA, so reducing 

the future fee burden on our feepayers. 

Our ORA reserves at 31 

March 2007 were £nil (2005/06: 

£7.2m) and at the centre of the 

range we have set for them. 

In our Business Plan 2007/08 we 

introduced two new components in 

the calculation of our Annual 

Funding Requirement, and so in 

future will hold reserves or deficits 

against them. They contribute 

towards funding: 

• A three-year transition 

programme as part of our move 

towards principles-based 

regulation. The surplus income 

(£8.0m) for this year, together 

with the ORA reserves we held at 

the beginning of the year 

(£7.2m), have been applied to 

fund this transition. In 2006/07 

£1.5m was incurred against that 

budget, so by the end of the year 

we had set aside reserves of 

£13.7m to cover those costs. We 

intend to increase our funding of 

this budget annually as needed, 

up to a maximum of £50m. 

• A £20m prepayment generated 

by the additional pension deficit 

reduction contributions made in 

2006/07. £4.8m of that 

prepayment was amortised 

during the year (funded by the 

shortfall in our expenditure 

relative to the budget we set for 

the year) leaving a balance of 

£15.2m at the end of the year. 

Movements in our reserves / 

(deficits) are summarised in 

Table 4.5: 

Table 4.5 

Reserves/ (Deficits) movements 

PBR Additional 

ORA transition pension 

reserve reserve payment Total 

£m £m £m £m 

At 1 April 2006 7.2 7.2 

Unbudgeted Pension contribution (20.0) (20.0) 

Excess Revenue collected 8.0 8.0 

Budget not spent 4.8 4.8 

Amortise pension contribution (4.8) 4.8 – 

Create PBR transition reserve (15.2) 15.2 – 

PBR costs (1.5) (1.5) 

Total management reserves 

at 31 March 2007 Nil 13.7 (15.2) (1.5) 

Net Pension liability (79.9) 

Total Statutory reserves at 

31 March 2007 (81.4)



49 

Financial 

Management 

and Reporting 

Framework 

The scope of activities falling within our remit is wide and varied. This includes some 

activities which are intended to be temporary in nature and/or which are subject to 

considerable variation from year to year. We cannot forecast these with the same reliability as 

regular recurring activities. We will continue to: 

• exert sound financial management and budgetary control over all areas of our expenditure 

and income; and 

• seek to manage any unavoidable volatility to minimise the impact on fee-payers from year 

to year. 

Our Board believes that it is helpful to have a framework within which to manage and report 

on our costs and funding. The following ‘streams’ of activities, which have distinct cost and 

funding characteristics, have been identified. 

Ongoing Regulatory 

Activity (ORA) 

Changes in Scope 

(increase or decrease) 

Exceptional items 

Enforcement costs 

These are core operating activities that are subject to year-on-year management as part of our 

budget process. The cost of ORA is the key figure, along with explanations of any material 

movements, which shows how we have met our obligation to be economic and efficient in 

using our resources. 

Parliament may legislate to change the scope of the activities that we regulate. Any scope 

changes, as with our other core operating activities, are subject to financial management as 

part of our budget process. However, in the first financial year affected by the change in 

scope, and until the new supervisory process is fully established, we believe material activities 

resulting from a scope change are best controlled separately so they are individually 

identifiable. In the longer term, when the ongoing supervisory requirements of the scope 

change have stabilised, typically after the new scope has been in place for at least a full year, 

we include these activities as part of the cost of our ORA. 

We will include the costs of exceptional items within the cost of our ORA, and will report on 

any material movements from year to year. 

Total enforcement costs depend on the number of cases and their complexity. We will 

continue to manage these costs and seek to optimise the mix of internal and external 

enforcement resources when we do this. We have included these costs within the cost of our 

ORA and we will report on any material movements from year to year. 

While we will maintain strong financial management of these costs, the actual amounts may 

be materially higher or lower than the budgeted level set in advance of the financial year. If 

this happens we will review any excess or reduction in costs from budgeted level and may 

seek to smooth the impact on fee-payers over a three-year period, subject to us being able to 

maintain satisfactory reserves. 

Panel costs 

Complaints 

Commissioner 

The Financial Services Consumer Panel and the Practitioner Panel have a status under FSMA 

that guarantees their independence from the FSA. These bodies and the Smaller Businesses 

Practitioner Panel control their own costs against budgets. They are, however, subject to 

our approval and are funded through our fees. These costs are included within the cost of 

our ORA. 

FSMA requires that an arrangement be in place for the investigation of complaints against the 

FSA. The Complaints Scheme was introduced in September 2001. FSMA requires us to ensure 

that the Complaints Commissioner has at his disposal the resources to conduct a full 

investigation of any complaints. The Complaints Commissioner controls his own costs against 

a budget, which is subject to our approval, and is funded through our fees. These costs are 

included within the costs of our ORA.

50 



Pension scheme 

deficit reduction 

contributions 

Transition costs 

Reserves 

The amounts required to reduce this deficit over time are inherently variable and depend on 

a number of factors including current investment values and projected investment returns. We 

have plans in place to reduce this deficit to nil over a ten-year period. 

The changes necessary to improve the effectiveness of our people and move towards a more 

principles-based regulatory approach will be controlled separately over a three-year period 

until 31 March 2010. We have set up a separate multi-year budget of £50m for that expense. 

In line with our Treasury Management Policy, we target reserves (that is the cumulative excess 

of our fees over our costs) levels of £nil, plus or minus 2% of the costs of our ORA.



51 

Financial Risk 

Management 

In the ordinary course of business, our operations expose us to a number of financial risks 

including credit risk, liquidity risk, inflation risk and the risk arising from the provision and 

management of our Final Salary pension scheme. We have in place a risk management 

programme that seeks to limit the adverse effect on our financial performance by monitoring 

those risks and taking appropriate mitigating action where required. The FSMA provides us 

with the power to make rules to levy fees to fund our operations. In doing so, we seek to 

ensure that we operate with due regard to our economy, efficiency and effectiveness as well 

as seeking to minimise any unnecessary volatility in those fees. 

The Board has delegated the responsibility of monitoring financial risk management to the 

Audit Committee. The policies set by the Board of directors are implemented by the finance 

function (concerning the manner in which transactions are accounted for and the overall 

management of financial risk) and by our regulatory services business unit (concerning the 

processing of financial transaction processing cycles, for example fee invoicing and 

collection). 

Credit risk on the 

collection of our 

periodic fees 

Liquidity, price and 

cash flow risk 

We charge fees to the persons we authorise, the bodies we recognise, the companies we list 

and the entities we register. The consultation process we go through in order to set our fees 

is designed to help ensure that they are set at a level which both reflects the regulatory 

activity involved and are affordable to all fee-payers, large or small. In addition, many of our 

smaller fee-payers use facilities offered by Premium Credit Limited, an independent credit 

provider, to finance the payment of our fees. In such instances Premium Credit Limited bears 

the credit risk, rather than the FSA. The level of unpaid debts is monitored on a regular basis. 

The Board has approved a policy for the management of any surplus cash balances that we 

may hold above the level needed to manage our short-term liquidity requirements. Such 

balances are invested by our agents, until January 2007 Royal Bank of Scotland, and then 

Lloyds TSB Bank plc, in high-quality, liquid deposits (thus eliminating any price risk) with a 

range of counter-parties in such a way as to avoid an excessive concentration of our 

investment with any specific counter-party. The concentration and the return on those 

investments, and the identity of our counter-parties, are monitored daily. 

Since January 2007, we have also had a £100m revolving credit facility contract with Lloyds, 

which is run alongside and operates in conjunction with the agency treasury service, allowing 

us to manage our net finance costs. 

Final salary pension 

scheme 

Leases 

Currency risk 

Our most significant financial management risk is that the benefits our Pension Plan offers to 

its Final Salary members will not be matched by the assets available to the Plan. In that case, 

the residual cost will be met by the FSA. What we are doing to manage those risks is set out 

on page 47. 

Under the terms of the lease for our premises at 25 The North Colonnade, for the period from 

4 November 2008 to 3 November 2018, the rent that we pay each year will increase in line 

with retail price inflation (RPI), subject to a minimum annual increase of 2.5% and a 

maximum of 5.0%. Given that cap and our current assumptions concerning the future levels of 

RPI, we do not consider it necessary to take further action to manage our potential exposure 

to an increase in RPI on the cost of this lease. 

We do not run any significant exposure to currency risk.

Section five 


53 

Section five 

The Board of the Financial Services Authority 54 

Report of the Directors 55 

Corporate governance statement and remuneration report 60 

Report of the independent auditors 68 

Financial statements for the year ended 31 March 2007 70 

Income statement 70 

Statement of recognised income and expense 70 

Balance sheet 71 

Statement of cash flows 72 

Notes to the financial statements 73 

Statement of the allocation of costs for the year ended 31 March 2007 95 

Statement of allocation of costs 98 

Report of the auditors 99

54 

Section five – The Board of the Financial Services Authority 


The Board of the Financial Services Authority 

14 15 

16 

8 

9 

11 

10 

12 

13 

6 

7 

4 

5 

3 

2 

1 

1. Sir Callum McCarthy 

Chairman, the FSA 

2. Dame Deirdre Hutton 

Non-executive Director and Deputy Chairman, the FSA 

Chairman, Food Standards Agency 

3. John Tiner 

Chief Executive, the FSA 

4. Peter Fisher 

Non-executive Director, the FSA 

Managing Director, BlackRock, Inc 

5. Hugh Stevenson 


Chairman, Equitas Ltd 

Chairman, The Merchants Trust Ltd 

Non-executive Director, Standard Life plc 

Formerly Chairman, Mercury Asset Management Group plc 

6. Karin Forseke 


Member of Finansmarknadsrådet 

Private Advisor to the Minister of Local Government 

and Financial Markets, Sweden 

Non-executive Director of the Royal Opera in Stockholm 

7. Iain Brown 

Company Secretary, the FSA 

8. Sir John Gieve 


Deputy Governor (Financial Stability), the Bank 

of England 

9. Sir James Crosby 


Non-executive Director, ITV plc 

Non-executive Director, Compass Group plc 

Chair of the Public Private Forum on Identity Management 

10. Hector Sants 

Managing Director (Wholesale and Institutional Markets), the FSA 

11. Brian Flanagan 


Non-executive Director, WM Morrison plc 

Non-executive Director, Jet Environmental Techniques Ltd 

Non-executive Director, Personal Navigation Systems Ltd 

Formerly Vice President, Mars Inc 

12. Professor David Miles 


Managing Director and Chief UK Economist, 

Morgan Stanley & Co Ltd 

Visiting Professor of Finance, Imperial College, University of 

London 

13. Michael Slack 


Chairman, the Fyfe Group Ltd 

Board member, British Insurance Brokers’ Association 

14. Andrew Whittaker 

General Counsel, the FSA 

15. Clive Briault 

Managing Director (Retail Markets), the FSA 

16. David Kenmir 

Managing Director (Regulatory Services), the FSA

Section five – Report of the Directors 


55 

Report of the Directors for the year ended 31 March 2007 

Throughout the Directors’ Report, references are made to the FSA’s website. The full addresses are detailed below. 

Table 5.1 

Financial Risk Outlook 

Business Plan 

Corporate Responsibility 

Health & Safety 

Equal Opportunity 

http://www.fsa.gov.uk/Pages/Library/Corporate/Outlook/fro_2007.shtml 

http://www.fsa.gov.uk/Pages/Library/Corporate/Plan/index.shtml 

http://www.fsa.gov.uk/Pages/About/What/CSR/index.shtml 

http://www.fsa.gov.uk/Pages/Library/Other_publications/Staff/staff_handbook/health/index.shtml 

http://www.fsa.gov.uk/Pages/Library/Other_publications/Staff/staff_handbook/working/equal/index.shtml 

The Directors of the FSA during the 

period reported on are shown in 

table 5.2 along with other 

information relating to their date of 

appointment, expiry of term and 

attendance record at the Board and 

the Audit, Risk, Remuneration and 

Non-executive Directors’ 

Committees as appropriate. 

The remuneration report is located 

at page 63.

56 



Table 5.2 

Name Board NedCo RemCo AuditCo RiskCo Original Expiry of 

meetings appointment current term 

date 

Clive Briault g 11/11 1 April 2004 31 March 2010 

James Crosby c g 10/11 4/4 2/2 3/4 15 January 2004 14 January 2010 

Tom de Swaan d 6/8 1/2 1/1 3/3 19 January 2001 18 January 2007 

Peter Fisher 3/3 2/2 1/1 19 January 2007 18 January 2010 

Brian Flanagan 2/3 1/2 0/1 1/1 19 January 2007 18 January 2010 

Karin Forseke 11/11 4/4 4/4 1 December 2004 30 November 2007 

Sir John Gieve 11/11 4/4 2/4 16 January 2006 15 January 2009 

Kyra Hazou 8/8 2/2 3/3 3/3 19 January 2001 18 January 2007 

Dame Deirdre Hutton a b h 11/11 4/4 2/2 4/4 11 December 1997 10 December 2007 

David Kenmir g 11/11 1 April 2004 31 March 2010 

Sir Callum McCarthy 11/11 22 September 2003 21 September 2008 

Professor David Miles g 10/11 4/4 4/4 1 April 2004 31 March 2010 

Hector Sants g 10/11 4 May 2004 3 May 2010 

Michael Slack 10/11 4/4 2/2 3/4 1 December 2004 30 November 2007 

Hugh Stevenson e f g 11/11 4/4 3/3 1 June 2004 31 May 2010 

John Tiner g i 11/11 22 September 2003 21 September 2009 

Clive Wilkinson 8/8 2/2 3/3 19 January 2001 18 January 2007 

Key 

a Chairman of NedCo 

d Chairman of RiskCo during the year from 

1 April 2006 to 2 January 2007 

g Director serving second concurrent term 

b Chairman of RemCo 

e Chairman of RiskCo from 3 January 2007 

h Director serving fourth concurrent term 

c Chairman of AuditCo 

f Chairman of FSA Pension Plan Trustee Ltd 

i John Tiner has resigned from his position 

early, with effect from 19 July 2007 

The only members of the FSA are the Directors. Each current Director has undertaken to guarantee the liability of the FSA up to an amount of £1. 

The Executive Directors are not directors of any UK listed companies and have no other paid positions. 

Sir John Gieve is the Deputy Governor, Financial Stability at the Bank of England and is an ex-officio member of the Board of the FSA. In a 

reciprocal arrangement with the Bank of England, Sir Callum McCarthy serves as a member of the Court of the Bank of England. 

All the FSA’s Directors are appointed by HM Treasury in line with the Code of Practice issued by the Commissioner for Public Appointments. 

The Chairman of the FSA is appointed for a five-year term and all other Directors are appointed for three-year terms. The Executive Directors have 

continuous employment contracts with the FSA, details of which are given in the remuneration report on page 63, and they have three-year 

renewable terms as Directors.



57 

Business Review 

Principal activities 

The FSA is the principal statutory 

regulator of financial services in the 

UK. Its activities are set out in 

FSMA which requires the FSA to 

regulate most financial services 

markets, exchanges and firms in 

wholesale and retail markets. 

Through FSMA, the FSA has rulemaking, 

investigatory and 

enforcement powers so that it can 

meet its statutory objectives. Further 

information on the principal 

activities can be found in the first 

three sections of the Annual Report. 

Principal risks and 

uncertainties 

The principal risk for the FSA is the 

failure to meet its statutory 

objectives. The FSA’s Risk 

Committee and Audit Committee 

keep under review risks which may 

interfere with the attainment of the 

statutory objectives. The Risk and 

Audit Committee reports, which 

provide more detail on risks and 

uncertainties that face the company, 

can be found on page 66. The 

Financial Risk Outlook 2007 (which 

is available on the FSA’s website) 

also provides information on what 

the FSA considers to be priority 

risks. 

Development and performance 

of the company’s business 

Analysis of the development and 

performance of the company’s 

business is set out in the first three 

sections of this Annual Report. The 

fourth section also reports on the 

position of the FSA at the end of the 

financial year, whilst the FSA’s 

Business Plan for 2007/08 (available 

on the FSA’s website) provides 

information relating to the FSA’s 

budget and priorities. 

Directors’ accounting 

responsibilities 

The Directors are responsible for 

preparing the financial statements in 

accordance with applicable law and 

international financial reporting 

standards, to show a true and fair 

view of the state of affairs of the 

company and of its income and 

expenditure for the period. In 

preparing these financial statements, 

the Directors consider that the 

company has used appropriate 

accounting policies, consistently 

applied and supported by reasonable 

and prudent judgements and 

estimates, and that all applicable 

accounting standards have been 

followed. 

The Directors have responsibility for 

ensuring that proper accounting 

records are kept which disclose with 

reasonable accuracy at any time the 

financial position of the company 

and enable them to ensure that the 

accounts comply with the 

Companies Act 1985. They are also 

responsible for the system of internal 

controls, safeguarding the assets of 

the company and, hence, for taking 

reasonable steps for the prevention 

and detection of fraud and other 

irregularities. 

Financial position 

The primary source of income for 

the FSA is the fees charged to those 

firms that the company regulates. 

Information on the FSA’s financial 

position is in the accounts, starting 

on page 70 and in the Financial 

Review on page 45. The Financial 

Review explains how the FSA 

manages its pension liabilities. The 

Directors agree with the analysis in 

the Financial Review and believe the 

FSA remains able to meet its 

liabilities as they fall due. 

Going concern 

The Directors are satisfied that the 

company has adequate resources to 

continue its business for the 

foreseeable future and consequently 

the going concern basis continues to 

be appropriate in preparing financial 

statements. 

Corporate responsibility 

As part of its overall approach to 

corporate responsibility, the FSA has 

a number of policies which state its 

principles and proposed activities 

with regard to areas such as the 

environment, community affairs and 

equal opportunity of employment. 

These policies, and in some cases, 

the company’s performance against 

objectives in these areas may be 

accessed through the website. 

The FSA recognises the impact its 

operations can have on the 

environment and on the community 

in which it operates. As part of this, 

the FSA is committed to measuring, 

reporting and, where practical, 

reducing its impact on the 

environment. The FSA’s performance 

against its targets set with regard to 

energy usage, material usage and 

waste produced and recycled can be 

found on the website. The FSA has 

also committed to reducing its 

carbon footprint and intends to 

offset the carbon emissions caused 

by all its business travel. The 

company will be in a position to 

report on this at the end of the 

2007/08 financial year. With regard 

to social and community issues, the 

FSA aims to be a good corporate 

citizen and develop projects which 

will both help the community and 

also be of benefit to staff. Details of 

these projects, managed by the 

Community Affairs team, can also 

be found on the website.

58 



The FSA has recently undertaken a 

programme to unite corporate 

responsibility projects throughout 

the company. It is intended that this 

will allow a more efficient utilisation 

of resources and provide 

opportunity to identify areas within 

the programme that could be 

improved upon. A further aspect of 

this programme is to establish a 

clear accountability and reporting 

framework for all corporate 

responsibility activities. In due 

course, performance against targets 

will also be reported on the website. 

The FSA aims to adopt corporate 

responsibility best practice where it 

is relevant and practical and is 

aligned with the FSA’s overall 

business strategy. 

Charitable donations 

The FSA made the donations shown 

in Table 5.3 as part of its 

Community Affairs programme. 

Equal opportunities 

The FSA values inclusiveness and 

confirms its continuing commitment 

to the principles of equal 

opportunities in employment, and in 

all the activities it undertakes. The 

FSA endeavours to provide a 

working environment where all are 

treated with dignity and respect and 

no one suffers discrimination or 

disadvantage because of gender, 

race, disability, sexual orientation, 

religion, belief or age. The FSA’s 

equal opportunity policy can be 

found on the website. 

In accordance with the Disability 

Discrimination Act 2005, the FSA 

aims to eliminate unlawful 

discrimination and harassment, and 

promote disability equality. The FSA 

also works to fulfil its statutory 

duties under the amended Sex 

Discrimination Act 1975 (introduced 

on 6 April 2007) which includes 

eliminating unlawful discrimination 

and harassment and promoting 

equal opportunities between men 

and women. 

Health and safety 

The FSA is committed to providing 

a healthy and safe environment for 

all staff and visitors to FSA 

premises. This commitment is 

promoted by our health and safety 

policy, which may be found on the 

website. 

Employee involvement 

The FSA uses a variety of methods 

of communication, including an 

intranet, email briefings and staff 

meetings, to keep employees up to 

date with developments within the 

company and the industries which it 

regulates. Employees are invited to 

give feedback on the FSA and its 

operations through formal and 

informal surveys performed 

throughout the year. Opportunities 

are also provided for in-house and 

external training, and during the 

year each employee spent an average 

of 6.1 days training. 

Table 5.3 

Recipient Amount Reason 

Crisis £10,210 In lieu of producing a corporate Christmas Card 

Police Community Clubs of Great Britain £660 To purchase copies of a booklet against bullying and 

vandalism for use in Tower Hamlets 

West Ham and Plaistow Old People’s Club £80 From the sale of old mobile phones 

Children’s Safety Society £100 Towards the emergency services visiting schools 

Isle of Dogs Community Foundation £577 Sponsorship of the IDCF Newsletter 

Bonnyrigg Football Club £538 Towards a football strip for a local children’s football team



59 

The Staff Consultative Committee 

provides channels of communication 

and consultation between the FSA 

and employees. The Committee 

gives employees the opportunity to 

contribute to and influence the 

development of the FSA, and to 

have their views heard at the highest 

levels in the organisation over 

matters affecting staff in general. 

The FSA recognises the importance 

and value of ensuring this process is 

effective. The Committee is also the 

forum through which the FSA 

complies with the EU Information 

and Consultation Directive 2004. 

Supplier payment policy 

The FSA’s policy is to aim to pay 

90% of invoices within 30 days of 

receipt of invoice. The average time 

taken to pay suppliers from receipt 

of invoice was 28.58 days. 

Auditor 

In the case of each of the persons 

who are Directors of the company at 

the date when this report was 

approved: 

• so far as each of the Directors is 

aware, there is no relevant audit 

information (as defined in the 

Companies Act 1985) of which 

the company’s auditor is 

unaware; and 

• each of the Directors has taken 

all the steps that he or she ought 

to have taken as a Director to 

make him or herself aware of any 

relevant audit information (as 

defined) and to establish that the 

company’s auditor is aware of 

that information. 

A resolution to re-appoint RSM 

Robson Rhodes as auditor will be 

put to members at the Annual 

General Meeting. 

By Order of the Board 

K Iain Brown 

Secretary 

May 2007

60 

Section five – Corporate governance statement and remuneration report 


Corporate governance statement and remuneration report 

Corporate governance statement for the year ended 31 March 2007 

Table 5.4 shows website references 

referred to in this statement, 

including the functions and terms of 

reference of the various Committees. 

As a company limited by guarantee, 

without shareholders, the FSA is not 

subject to the requirements of the 

Combined Code on Corporate 

Governance (the Code). However, 

the FSA is committed to meeting 

high standards of corporate 

governance; therefore, the company 

chooses to comply with the Code, as 

far as practicable, according to the 

nature of its business. 

Given the FSA’s position, the Board 

does not report on areas of noncompliance 

by exception. It does 

aim, through this report, to show the 

areas in which it does meet the 

requirements of the Code. 

Members of the Board, of which the 

majority are Non-executives, come 

from a variety of backgrounds with a 

wide range of skills and experience. 

Non-executives are independent of 

the FSA, although, on occasion, 

conflicts of interest may arise where a 

position is held within a firm 

regulated by the FSA. In these cases 

there are stringent procedures in place 

to ensure that any such conflicts will 

not interfere with the FSA’s activities 

or fulfilment of its statutory 

objectives. As it is the FSA’s opinion 

that all Non-executive Directors are 

independent of management, the 

Board has concluded that it is neither 

necessary nor appropriate to appoint 

a senior independent director. In 

addition, FSMA established the Nonexecutive 

Directors’ Committee 

(NedCo), its only members being the 

Non-executive Directors, to keep 

under review the Authority’s 

discharge of certain of its functions. 

More information on the role of 

NedCo is on page 62. 

The Board met 11 times last year. 

Further details of individual 

Directors’ attendance can be found 

on page 56. Meeting agendas are set 

by a rolling schedule and 

supplemented with items which arise 

according to current business needs. 

The Company Secretary ensures 

sufficient preparatory information is 

provided in good time for Directors 

to review before the meeting and he, 

or his Deputy, records decisions 

made and discussions leading to 

them, at the meetings. 

The roles of the Chief Executive and 

the Chairman are clearly split. The 

Chairman heads the Board, whose 

role is to lead and control the affairs 

of the FSA. There is a schedule of 

matters reserved to the Board which 

includes but is not limited to: 

• making strategic decisions; 

• ensuring the organisation has 

sound financial controls in place; 

• developing and maintaining good 

relationships with other 

organisations, including the 

Government; 

• overseeing the day-to-day 

business of the executive officers; 

• succession planning; and 

• providing a means of 

accountability. 

New Directors undergo a 

comprehensive induction procedure 

which includes opportunities to meet 

key employees throughout the 

business. Directors have access to the 

Company Secretary who maintains 

an ongoing training programme and 

provides regular opportunities for 

them to update their skills and 

knowledge. The Company Secretary 

will also arrange for Directors to 

take independent professional advice, 

if necessary. 

The FSA operates independently of 

Government but is accountable to 

Parliament, through Treasury 

Ministers. In accordance with FSMA, 

the FSA is also required to maintain 

effective arrangements for consulting 

practitioners and consumers, which it 

has done through the establishment 

of the Consumer, Practitioner and 

Smaller Businesses Practitioner 

Panels. All Panels are independent 

and are free to publish their views on 

the FSA’s work.



61 

Table 5.4 

Accountability mechanisms 

Role of the Chairman 

Role of the Chief Executive 

Schedule of matters reserved to the Board 

Board delegations, including terms of 

reference of Committees 

Directors’ Biographies 

NedCo membership 

NedCo functions 

RemCo 

AuditCo 

RiskCo 

Regulatory Decisions Committee membership 

Listing Authority Committees membership 

http://www.fsa.gov.uk/Pages/About/Who/Accountability/index.shtml 

http://www.fsa.gov.uk/pages/About/Who/Management/Chairman.shtml 

http://www.fsa.gov.uk/pages/About/Who/Management/CEO.shtml 

http://www.fsa.gov.uk/pubs/other/SoM.pdf 

http://www.fsa.gov.uk/pubs/other/Gov_memo.pdf 

http://www.fsa.gov.uk/Pages/About/Who/board/index.shtml 

http://www.fsa.gov.uk/Pages/About/Who/board/committees/index.shtml 

http://www.fsa.gov.uk/pubs/other/Gov_memo.pdf 




http://www.fsa.gov.uk/Pages/About/Who/board/committees/RDC/index.shtml 

http://www.fsa.gov.uk/pages/about/who/board/committees/laa/index.shtml 

Evaluations 

During the year, a number of 

evaluations relating to the Board 

and its members were carried out. 

NedCo reviewed the performance of 

the Chairman in consultation with 

HM Treasury and the Chairs of the 

Independent Panels. Likewise, the 

Chairman assessed the effectiveness 

of the Non-executive Directors on 

the basis of one-to-one discussions. 

In compliance with the Code, the 

Board carried out an evaluation of 

its effectiveness. This year the Board 

evaluation was done by a 

combination of bespoke 

questionnaires and follow-up 

discussions by the Board. 

The results of the effectiveness 

review were analysed and the 

findings were discussed by the 

Board. The Board agreed that 

overall its performance was effective 

although there remained some areas 

for further development. 

Governance structure 

Listing Authority 

Advisory Committee 

FSA Board 

Non-executive 

Directors’ 

Committee 

Listing Authority 

Review Committee 

Regulatory 

Decisions 

Committee 

Risk 

Committee 

Audit 

Committee 

Remuneration 

Committee

62 



The Committee of the 

Non-executive Directors 

(NedCo) 

NedCo has been established and 

operates in line with the provisions 

of Schedule 1 to FSMA. Further 

details on its composition and the 

statutory functions it discharges can 

be found on the FSA website. 

NedCo met on four occasions 

during the year to ensure that its 

statutory functions were being 

satisfactorily discharged by: 

• discussions on the efficient and 

economic use of the FSA’s 

resources (for more information 

see the appropriate section 

below); and receiving reports, as 

appropriate on: 

• the Audit Committee’s work in 

keeping under review the 

question of whether the FSA’s 

internal financial controls 

secured the proper financial 

conduct of its financial affairs; 

• the remuneration awards made 

by the Remuneration 

Committee to the Executive 

Directors and the Chairman; 

and the performance-related 

bonus payments made to the 

Executive Directors; and 

• Executive Directors’ 

objectives. 

Report of the Non-executive 

Directors 

The unitary Board is the FSA’s 

primary decision-making body. It 

also exercises a broad oversight of 

all the FSA’s policy, strategic and 

operational activities. The extent of 

the Board’s role and the provision of 

timely and relevant information to 

the Board, its committees and 

NedCo, allows NedCo to rely 

largely on the Board’s work while 

sharing other functions, including 

oversight of internal controls, with 

the Audit Committee (AuditCo). 

The Remuneration Committee 

(RemCo) reports on its work to 

NedCo. 

Efficiency and economy 

During the year, NedCo kept under 

review whether the FSA is using its 

resources efficiently and 

economically. Data relating to the 

measurement of efficiency and 

economy within the FSA forms part 

of the management information 

presented to the Board quarterly, 

and which is reviewed specifically by 

NedCo. NedCo challenged 

information provided to it, sought 

further explanations when 

appropriate and encouraged 

enhancements to the reporting 

framework on a continuous 

improvement basis. 

Internal financial controls 

During the year NedCo has kept 

under review the question of 

whether the FSA’s internal financial 

controls secure the proper conduct 

of its financial affairs, in conjunction 

with AuditCo. The full statement on 

internal financial controls is on 

page 67. 

Remuneration of the 

Executive Directors 

NedCo has delegated to RemCo the 

function of determining the 

remuneration of the Chairman, the 

Chief Executive and the Executive 

Directors. 

RemCo 

The composition, functions and 

terms of reference of RemCo can be 

found on the website. During the 

year, Tom de Swaan retired from 

RemCo. He was replaced by Brian 

Flanagan.



63 

Remuneration report 

This section of the remuneration 

report is not subject to audit. 

Information on the appointment of 

the Chairman and the Executive 

Directors can be found in the Report 

of the Directors on page 55 and in 

the emoluments table on page 65. 

The Executive Directors have 

continuous contracts of employment 

that provide for 12 months’ prior 

notice of termination by either party, 

with a maximum of 12 months’ 

total remuneration (as described 

below) payable in the event of early 

termination of the contract by the 

FSA. In determining the 

remuneration of the Executive 

Directors, the Committee undertook 

an evaluation of their performance, 

assisted by an assessment of 

performance against objectives. The 

objectives for each Director took 

account of the FSA’s overall 

objectives by reference to the 

Business Plan and the individual 

Director’s areas of responsibility. 

The Committee also considered 

feedback on each individual Director 

from HM Treasury and the Chairs 

of the Practitioner and Smaller 

Businesses Practitioner Panels. It has 

the benefit of advice from the 

Director, Human Resources, and 

market data from Watson Wyatt, its 

external consultants. The Company 

uses Watson Wyatt on an ad hoc 

basis for salary benchmarking 

exercises. The total remuneration 

package of the Executive Directors 

comprises the same four elements as 

apply to other FSA employees. 

• Basic Pensionable Salary 

Salaries are reviewed annually. In 

setting base salaries for the 

Chairman and Executive Directors, 

the Committee aimed, so far as 

possible, to position these at or 

around the median market level 

applying in the private sector. 

• Performance-related bonus 

The Executive Directors are eligible 

to be considered for a performance 

related bonus up to a maximum of 

25% of basic pensionable salary. At 

his request, the Chairman was not 

considered for a bonus. 

• Other benefits 

A sum is available for each employee 

which may be spent against a range 

of benefits. The sum for the 

Chairman and Executive Directors is 

shown in table 5.5. The Chairman 

and Executive Directors also have 

access to a car and driver, and an 

appropriate portion of these costs is 

included in ‘other emoluments’ in 

the table on page 65. 

• Pensions 

There are two sections to the FSA 

Pension Plan (the Plan) operated by 

the FSA, both of which are noncontributory; 

a defined benefit 

section (closed to new entrants), and 

a defined contribution section. 

Callum McCarthy, David Kenmir 

and Clive Briault are members of the 

defined contribution section of the 

scheme. Before they were appointed 

as Managing Directors, David 

Kenmir and Clive Briault were 

members of the FSA’s defined benefit 

scheme, and they retain deferred 

benefits in that section. 

John Tiner and Hector Sants are not 

members of the Plan and are 

contractually entitled to receive a 

non-pensionable supplement to their 

base salary, in lieu. 

The sums paid to the Chairman and 

each of the Executive Directors in 

respect of each component are in the 

table on page 65. 

Table 5.5 

Director Callum McCarthy John Tiner Clive Briault David Kenmir Hector Sants 

Flexible benefits account (£) 25,381 25,986 20,072 19,378 22,046

64 



Non-executive Directors 

In order to facilitate the independent 

assessment of fees for Non-executive 

Directors, their remuneration is set 

by an independent panel, the 

membership of which comprises the 

Chairs of the Practitioner and 

Consumer Panels, or their nominees, 

and an external moderator. In April 

2006 the Panel reviewed the fees 

payable; the Panel increased the fees 

for Non-executive Directors and the 

Chairman of FSA Pension Plan 

Trustee Ltd as shown in the table on 

page 65. 

At the end of the year, a deferred 

defined benefit pension was held in 

the Plan for two current Executive 

Directors, as a result of their active 

membership in the defined benefit 

section of the Plan up to 1 April 

2004. From 1 April 2004 the two 

current Executive Directors joined 

the defined contribution section of 

the Plan. Details of accrued benefits 

in the defined benefit section are set 

out in table 5.6. 

Table 5.7 sets out the transfer values 

of those Directors’ benefits under 

the scheme, calculated in a manner 

consistent with ‘Retirement Benefit 

Schemes – Transfer Values (GN11)’, 

published by the Institute of 

Actuaries. 

Members of the Plan have the 

option to pay Additional Voluntary 

Contributions; neither contributions 

nor the resulting benefits are 

included. 

Emoluments tables 

This section of the report, which contains information on Directors’ emoluments, contains audited information. 

Table 5.6 

Accrued pension Real increase/(decrease) Accrued pension 

at 31 March 2006 in accrued pension Inflation at 31 March 2007 

£’000 £’000 £’000 £’000 1 

Clive Briault 71 – 3 74 

David Kenmir 52 – 2 54 

1 The defined benefit entitlement is based on pensionable service to 1 April 2004 and final pensionable salary as at 1 April 2004. The Directors ceased to accrue any further 

benefits in the defined benefit section of the Plan from 1 April 2004. The Directors’ pension entitlement at their normal retirement date will be the leaving service pension 

at 1 April 2004 increased broadly by the change in the retail price inflation index (capped at 5% p.a.) between 1 April 2004 and date of retirement, calculated in 

accordance with legislation and the Rules of the Plan. Any pension from the defined contribution section of the Plan will be paid in addition to this pension. 

Table 5.7 

Transfer value at Transfer value of real Other changes Transfer value at 

31 March 2006 increase in accrued pension to transfer value 31 March 2007 

£’000 £’000 £’000 £’000 

Clive Briault 690 – 182 872 

David Kenmir 386 – 102 488



65 

Table 5.8 

Performance Other 

Board related emoluments 2007 2006 

fee Salary bonuses and benefits Total Total 

£ £ £ £ £ £ 

Callum McCarthy (Chairman) – 360,000 – 73,565 433,565 436,142 

Executive Directors 

Clive Briault – 285,000 65,000 58,029 408,029 379,540 

David Kenmir – 285,000 65,000 83,453 433,453 383,121 

Hector Sants – 315,000 71,000 96,829 482,829 445,303 

John Tiner 1 – 430,000 95,000 127,577 652,577 572,619 

Non–executive Directors 2 

Dame Deirdre Hutton CBE (Deputy Chairman) 3 60,000 – – – 60,000 60,000 

James Crosby 5,6 32,500 – – – 32,500 26,813 

Tom de Swaan 4,5 25,720 – – – 25,720 28,250 

Peter Fisher 7 – – – – – – 

Brian Flanagan 4,905 – – – 4,905 – 

Karin Forseke 25,000 – – – 25,000 22,500 

Sir John Gieve 7 – – – – – – 

Kyra Hazou 4 20,095 – – – 20,095 22,500 

Sir Andrew Large 7 – – – – – – 

Professor David Miles 25,000 – – – 25,000 22,500 

Michael Slack 25,000 – – – 25,000 22,500 

Hugh Stevenson 5,8 44,375 – – – 44,375 37,500 

Stephen Thieke 9 – – – – – 7,063 

Clive Wilkinson 4 20,095 – – – 20,095 22,500 

282,690 1,675,000 296,000 439,453 2,693,143 2,488,851 

Of which fees for service as Directors 282,690 272,126 

Remuneration as executives 2,410,453 2,216,725 

2,693,143 2,488,851 

1 The total emoluments of the highest paid director during the year, John Tiner, were £652,577 (2006: £572,619), including a supplement of £49,468 (2006: 42,553), 

paid during the year towards the funding of his personal pension. 

2 The fee for a non–executive director was set by the independent panel, established with the approval of HMT, at £25,000 per annum with effect from 1 April 2006. 

3 Dame Deirdre Hutton CBE was appointed as Deputy Chairman from 1 April 2004. The fee payable to the Deputy Chairman was set by the independent panel at 

£60,000 per annum with effect from 1 April 2005 and is unchanged for 2006/07. 

4 Tom de Swaan, Kyra Hazou and Clive Wilkinson all retired as Directors on 18 January 2007 and their fees for 2007 were pro–rated. 

5 An additional fee of £7,500 per annum is paid to any non-executive director (other than the Deputy Chairman) who has been appointed to chair a committee of the 

Board. Two Directors chaired the Risk Committee during the year: Tom de Swaan from 1 April 2006 to 2 January 2007, and Hugh Stevenson from 3 January 2007 to 

31 March 2007. James Crosby chaired the Audit Committee throughout the year. 

6 The fee for James Crosby was paid directly to his previous employer, HBOS, for the three months to 30 June 2006, and from 1 July 2006 his fee was paid through the 

FSA payroll. 

7 Sir Andrew Large retired as a director on 15 January 2006, and Sir John Gieve was appointed from 16 January 2006. Both Directors waived their Board fees in respect 

of the years concerned. Peter Fisher was appointed on 19 January 2007 and waived his fee for the period. 

8 Hugh Stevenson also chaired the Board of FSA Pension Plan Trustee Ltd in the year. The annual fee was set at £17,500 by the independent panel with effect from 

1 April 2006. 

9 Stephen Thieke retired as a director on 30 June 2005.

66 



Committees of the Board 

Audit Committee 

The role of the Audit Committee is 

to advise the Board on the quality of 

the FSA’s financial management and 

the adequacy of its internal control 

systems. The Committee’s terms of 

reference, and information on its 

membership, can be found on the 

FSA’s website. Committee members 

would like to thank Clive Wilkinson 

and Kyra Hazou, who retired from 

the Board during the year, for their 

work as members of the Committee. 

During the year, the Committee has: 

• invited senior management to 

attend its meetings and held 

private sessions with the internal 

and external auditor at each 

meeting; 

• monitored the integrity of the 

financial statements and provided 

challenge to management on the 

FSA’s financial performance; 

• reviewed judgement and 

disclosure issues for the FSA’s 

financial statements, including 

the adoption of international 

financial reporting standards; 

• overseen the continuing work to 

re-structure the Information 

Systems function in order to 

address shortfalls in its 

performance previously 

identified; 

• reviewed the internal financial 

controls and risk management 

systems, in conjunction with the 

Non-executive and Risk 

Committees; 

• reviewed steps taken by 

management, to ensure that staff 

across the FSA understand the 

importance of compliance with 

all key internal processes and 

procedures; 

• overseen the development of an 

online system, accessible to all 

staff, setting out the way in 

which the Board’s delegated 

authority is exercised by senior 

management and staff 

committees; 

• undertaken a review of the 

effectiveness and independence of 

the external Auditor, RSM 

Robson Rhodes, following the 

firm’s appointment in early 2006; 

• in conjunction with the Risk 

Committee, overseen work by the 

Strategy and Risk Division to 

streamline risk review and 

mitigation methodologies, to 

facilitate the allocation of 

responsibility for reviewing 

specific risk areas between both 

Committees; 

• has considered whether the 

Executive has correctly assessed 

the risk by challenging the 

Executive on the risk rating and 

the actions taken to address the 

risk; 

• overseen the implementation of 

improvements to the operation of 

the Internal Audit Division 

(formerly the Business Review 

and Audit Division), following an 

external review; 

• reviewed the Director of Internal 

Audit’s plans and specific reports 

produced throughout the year; 

• considered updates on potential 

litigation against the FSA; and 

• reviewed its own terms of 

reference to ensure that they 

remain in line with best practice 

and are consistent with those of 

the Risk Committee. 

RSM Robson Rhodes is not 

permitted to tender for internal 

audit work or for other work within 

the FSA above a pre set financial 

limit based on a multiple of the 

audit fee. Further information is 

provided in Note 5 of the Accounts. 

All services provided by RSM 

Robson Rhodes to the FSA are 

subject to defined procurement 

procedures. 

Risk Committee 

The Committee’s purpose is to assist 

the Board in reviewing risks to its 

statutory objectives. The 

Committee’s terms of reference, and 

information on its membership, can 

be found on the FSA’s website. 

Committee members would like to 

thank Tom de Swaan and Kyra 

Hazou, who retired from the Board 

during the year, for their work as 

members of the Committee. Hugh 

Stevenson took over as Chairman 

from Tom de Swaan, whilst Peter 

Fisher joined the Committee. 

For 2006/07, the Committee has 

focused on the risks to the 

environment in which the FSA 

regulates, whilst the Audit 

Committee has reviewed risks to the 

FSA’s day-to-day operations. 

The Committee has made use of the 

FSA’s own risk management and 

reporting system. This system 

records all risks identified and 

reviewed by local business areas. 

Those risks are then reviewed and 

appropriate mitigation strategies put 

in place by the Executive.



67 

In reviewing the risks, the 

Committee has considered whether 

the Executive has correctly assessed 

the risk by challenging the Executive 

on the risk rating and the actions 

taken to address the risk. The 

Committee has analysed the risk so 

as to form their own conclusion on 

whether the risk rating is 

appropriate and the mitigation 

strategy effective. The Committee 

has also considered whether there 

are other risks that should be 

reviewed. The Committee is aware 

that a proportionate approach to 

risk management is required, given 

that it is not possible to eliminate 

risks from the system. The 

Committee’s feedback on risk areas 

is reported back to the Board at its 

next meeting and into the risk 

management system as required. 

Over the year the Committee has 

considered a diverse range of risks 

and mitigation strategies including: 

• international crisis management 

and co-operation including the 

consequences of avian flu on 

financial markets and markets’ 

resilience to external shocks; 

• the difficulties involved in 

tackling financial crime; 

• excessive levels of credit; 

• high levels of leveraged finance 

and the likelihood of a failure; 

• the impact of changes in UK 

bankruptcy law for consumers 

and firms; 

• private equity, focusing on the 

level of capital moving from 

public markets into private equity 

funds; and 

• the implications of credit 

derivatives for financial markets. 

Internal controls 

The Board is responsible for 

ensuring that a system of internal 

controls is in place, and for 

reviewing its effectiveness. The 

system is designed to provide 

reasonable, but not absolute, 

assurance against material 

misstatement or loss and to manage 

rather than eliminate risks to the 

FSA’s statutory objectives. The 

Board’s policy on internal controls 

and risk management includes 

established processes and procedures 

for identifying, evaluating and 

managing the significant risks faced 

by the FSA. 

The Board believes that the 

processes are in line with the 

guidance set out in the Turnbull 

Report. They have been in place 

throughout the year and up to the 

date of the approval of the Report 

and Accounts. They are intended to 

ensure that, in the event of a 

problem arising, it is drawn to the 

attention of management in a timely 

way and appropriate remedial action 

taken. 

In accordance with FSMA Schedule 

1 Part I 4 (3)(b) NedCo, in 

conjunction with the Audit and Risk 

Committees, assists the Board by 

undertaking reviews of the adequacy 

of the control processes and 

challenging the executive on their 

effectiveness. 

Regulatory Decisions 

Committee (RDC) 

Members of the RDC are appointed 

by the Board. The Board receives 

quarterly reports from the RDC 

Chairman, who also attends Board 

meetings to discuss significant 

matters in those reports. During the 

year the RDC Chairman reviewed 

the balance and composition of the 

Committee and discussed general 

succession planning with the Board. 

More details on the role and 

membership of the RDC can be 

found on the FSA website. 

Listing Authority Committees 

The Board has two listing 

committees made up of external 

practitioners to advise the Board and 

review elements of the FSA’s 

function as the competent authority 

for listing in the UK. The Listing 

Authority Advisory Committee 

(LAAC) met three times during the 

year, with smaller sub-groups 

meeting more frequently to consider 

particular issues. The Chairman 

provided reports to the Board on 

relevant issues, twice by attendance. 

During the year LAAC reviewed its 

terms of reference and composition. 

LAAC also oversaw a market user 

survey following the implementation 

of the new listing and prospectus 

rules. More information can be 

found on page 23. 

The Listing Authority Review 

Committee, whose role is as a 

technical appeal committee, has not 

been called during the year. More 

details on membership of the 

committees can be found on the FSA 

website.

68 

Section five – Report of the independent auditors 


Independent auditors’ report to the members of the 


We have audited the financial 

statements of the Financial Services 

Authority for the year ended 31 

March 2007 which comprise the 

income statement, the statement of 

recognised income and expense, the 

balance sheet, the statement of cash 

flows and related notes 1 to 21. 

These financial statements have been 

prepared under the accounting 

policies set out therein. We have also 

audited the information in the 

Corporate Governance Statement 

regarding directors’ remuneration 

that is described as having been 

audited. 

This report is made solely to the 

company’s members, as a body, in 

accordance with Section 235 of the 

Companies Act 1985. Our audit 

work has been undertaken so that 

we might state to the company’s 

members those matters we are 

required to state to them in an 

auditors’ report and for no other 

purpose. To the fullest extent 

permitted by law, we do not accept 

or assume responsibility to anyone 

other than the company and the 

company’s members as a body, for 

our audit work, for this report, or 

for the opinions we have formed. 

Respective responsibilities of 

directors and auditors 

The directors’ responsibilities for 

preparing the Annual Report, the 

part of the Corporate Governance 

Statement regarding directors’ 

remuneration to be audited, and the 

financial statements in accordance 

with applicable law and 

International Financial Reporting 

Standards (IFRSs) as adopted by the 

European Union are set out in the 

Statement of Directors’ 

Responsibilities. 

Our responsibility is to audit the 

financial statements and the part of 

the Corporate Governance 


remuneration to be audited in 

accordance with relevant legal and 

regulatory requirements and 

International Standards on Auditing 

(UK and Ireland). 

We report to you our opinion as to 

whether the financial statements give 

a true and fair view and whether the 




remuneration to be audited are 

properly prepared in accordance 

with the Companies Act 1985. We 

report to you whether in our 

opinion the information given in the 

Directors’ Report is consistent with 

the financial statements. The 

information given in the Directors’ 

Report includes the specific 

information presented in the 

Financial Review that is cross 

referred from the Business Review 

section of the directors’ report. 

In addition, we report to you if, in 

our opinion, the company has not 

kept proper accounting records, if 

we have not received all the 

information and explanations we 

require for our audit, or if 

information specified by law 

regarding directors’ remuneration 

and other transactions is not 

disclosed. 

We read other information 

contained in the Annual Report, 

and consider whether it is consistent 

with the audited financial 

statements. The other information 

comprises only the Directors’ 

Report, the unaudited part of the 

Corporate Governance Statement, 

the Chairman’s Statement and the 

Financial Review. We consider the 

implications for our report if we 

become aware of any apparent 

misstatements or material 

inconsistencies with the financial 

statements. Our responsibilities do 

not extend to any other 

information.

Section five – Report of the independent auditors 


69 

Basis of audit opinion 

We conducted our audit in 

accordance with International 

Standards on Auditing (UK and 

Ireland) issued by the Auditing 

Practices Board. An audit includes 

examination, on a test basis, of 

evidence relevant to the amounts 

and disclosures in the financial 

statements and the part of the 

Corporate Governance Statement 

regarding directors’ remuneration to 

be audited. It also includes an 

assessment of the significant 

estimates and judgements made by 

the directors in the preparation of 

the financial statements, and of 

whether the accounting policies are 

appropriate to the company’s 

circumstances, consistently applied 

and adequately disclosed. 

We planned and performed our 

audit so as to obtain all the 

information and explanations which 

we considered necessary in order to 

provide us with sufficient evidence 

to give reasonable assurance that the 




remuneration to be audited are free 

from material misstatement, whether 

caused by fraud or other irregularity 

or error. In forming our opinion we 

also evaluated the overall adequacy 

of the presentation of information in 

the financial statements and the part 

of the Corporate Governance 


remuneration to be audited. 

Opinion 

In our opinion: 

• the financial statements give a 

true and fair view, in accordance 

with IFRSs as adopted by the 

European Union, of the state of 

affairs of the company as at 31 

March 2007 and of its surplus 

for the year then ended. 

• The financial statements and the 

part of the Corporate Governance 


remuneration to be audited have 

been properly prepared in 

accordance with the Companies 

Act 1985. 

• The information given in the 

Directors’ Report is consistent 

with the financial statements. 

Separate opinion in relation 

to IFRS 

As explained in Note 2, the 

company in addition to complying 

with its legal obligation to apply 

IFRSs adopted by the European 

Union, has also complied with the 

IFRSs as issued by the International 

Accounting Standards Board. 

In our opinion the financial 

statements give a true and fair view, 

in accordance with IFRSs, of the 

state the company’s affairs as at 

31 March 2007 and of its surplus 

for the year then ended. 

RSM Robson Rhodes LLP 

Chartered Accountants and 

Registered Auditors 

London, England 

25 May 2007

70 

Section five – Financial statements 


Financial statements for the year ended 31 March 2007 

Income statement for the year ended 31 March 2007 

Notes 2007 2006 

(Restated) 

£m £m 

Administrative costs (295.8) (282.7) 

Interest on bank deposits 5.1 4.4 

Other net finance income/(costs) 15 1.0 (0.8) 

Other revenue 7 26.0 22.8 

Net costs for year (263.7) (256.3) 

Fee revenue 282.1 265.1 

Surplus before taxation 18.4 8.8 

Taxation 8 (1.5) (1.3) 

Surplus after taxation 5 16.9 7.5 

All results are derived from continuing operations. 

Statement of recognised income and expense for 

the year ended 31 March 2007 


£m £m 

Surplus for the year 16.9 7.5 

Actuarial gains and losses for the year in respect of the defined benefit pension scheme 15 (14.2) (20.1) 

Total recognised income and expense for the year 2.7 (12.6)



71 

Balance sheet as at 31 March 2007 


£m £m 

Non current assets 

Intangible assets 9 15.1 10.1 

Property, plant and equipment 10 18.2 19.5 

33.3 29.6 

Current assets 

Trade and other receivables 11 10.6 9.9 

Trading investments 12 1.9 18.2 

Cash and cash equivalents 11 47.8 37.6 

60.3 65.7 

Total assets 93.6 95.3 

Current liabilities 

Trade and other payables 13 (79.1) (72.9) 

Current tax liabilities (0.8) (0.8) 

(79.9) (73.7) 

Total assets less current liabilities 13.7 21.6 

Non current liabilities 

Trade and other payables 13 (13.1) (11.9) 

Long term provisions 14 (2.1) (2.5) 

Net (liabilities)/assets excluding retirement benefit obligation (1.5) 7.2 

Retirement benefit obligation 15 (79.9) (91.3) 

Net liabilities, including retirement benefit obligation (81.4) (84.1) 

Accumulated deficit 16 (81.4) (84.1) 

The financial statements were approved and authorised for issue by the Board on 24 May 2007, and were signed on its behalf by: 

Callum McCarthy ......... Chairman 

John Tiner ............... Chief Executive Officer

72 



Statement of cash flows for the year ended 31 March 2007 


£m £m 

Net cash generated from operations 21 8.5 28.4 

Corporation tax paid (1.5) (1.1) 

Net cash from operating activities 7.0 27.3 

Investing activities 

Interest received on bank deposits 5.1 4.4 

Expenditure on software development 9 (10.3) (4.5) 

Purchases of property, plant and equipment 10 (7.9) (6.1) 

Sale/(Purchase) of trading investments 16.3 (1.2) 

Net cash generated from/(used in) investing activities 3.2 (7.4) 

Net increase in cash and cash equivalents 10.2 19.9 

Cash and cash equivalents at the start of the year 37.6 17.7 

Cash and cash equivalents at the end of the year 47.8 37.6



73 

Notes to the financial statements – 31 March 2007 

1. General information 

The Financial Services Authority is a company incorporated in the United 

Kingdom under the Companies Act 1985. The address of the registered office 

is given on page two. The nature of the Authority’s operations and its 

principal activities are set out on page 57. 

These financial statements are presented in pounds sterling because that is 

the currency of the primary economic environment in which the Authority 

operates. 

At the date of the authorisation of these financial statements, the following 

Standards and Interpretations which have not been applied in these financial 

statements were in issue but not yet effective: 

• IFRS 7: Financial Instruments: Disclosures; and the related amendments 

to IAS 1 on capital disclosures 

• IFRS 8: Segmental Reporting 

• IFRIC 8: Scope of IFRS 2 

• IFRIC 9: Reassessment of embedded derivatives 

• IFRIC 10: Interim reporting and impairments 

• IFRIC 11: IFRS 2 – Group and Treasury Share Transactions 

• IFRIC 12: Service Concession Arrangements 

The directors anticipate that the adoption of these Standards and 

Interpretations in future periods will have no material impact on the financial 

statements of the Authority. 

2. Significant accounting policies 

The financial statements have been prepared in accordance with 

International Financial Reporting Standards (‘IFRS’). The financial 

statements have also been prepared in accordance with the IFRS adopted for 

by the European Union. The financial statements have been prepared on an 

historical cost basis, except for revaluation of financial assets. The principal 

accounting policies adopted are set out below:

74 



a. Income statement 

The format of the income statement on page 70 has been designed to show 

net costs before fees levied to cover those costs. It is considered that this 

format best represents the nature of the activities of the FSA, which involves 

carrying out statutory functions and levying fees to meet the net cost of those 

functions. 

UKLA fees have been reclassified and presented in the income statement as 

sundry income rather than fee income. The impact is an increase in sundry 

income, and reduction in fee income, of £5.9m (2005/06: £5.5m). 

b. Revenue recognition 

All fee revenue is receivable under the Financial Services and Markets Act 

2000 (FSMA), is measured at fair value, and represents the fees to which the 

FSA was entitled in respect of the financial year. 

Interest received on bank deposits is accrued on a time basis by reference to 

the principal outstanding and the effective interest rate applicable. 

c. Property, plant and equipment 

Property, plant and equipment is stated at cost less accumulated depreciation 

and any accumulated impairment losses. 

Depreciation is calculated to write off the cost less estimated residual value 

on a straight-line basis over the expected useful economic lives. The principal 

useful economic lives used for this purpose are: 

Leasehold improvements 

Computer equipment (excluding software) 

Furniture and equipment 

Up to 10 years 

Up to 3 years 

Up to 10 years 

If events or changes in circumstances indicate the carrying value may not be 

recoverable then the carrying values of tangible fixed assets are reviewed for 

impairment. 

The gain or loss arising on the disposal or retirement of an asset is 

determined as the difference between the sales proceeds and the carrying 

amount of the asset and is recognised in the income statement. 

d. Recognition of enforcement expenses 

All costs incurred to the end of the year are included in the accounts, but no 

provision is made for the costs of completing current work unless there is a 

present obligation. 

In the course of its enforcement activities, the FSA gives indemnities to 

certain provisional liquidators and trustees. Provision is made in the accounts 

for costs incurred by such liquidators and trustees to the year end and 

estimated to be recoverable from the FSA under such indemnities. The 

amount provided is discounted to present value.



75 

e. Retirement benefit costs 

The company operates an occupational pension scheme, the FSA Pension 

Plan, for its employees. There are two sections in the pension plan: the Final 

Salary section (a defined benefit arrangement which is closed to new 

members) and the Money Purchase section (a defined contribution 

arrangement for new entrants). 

Defined contribution scheme – payments to the defined contribution section 

are recognised as an expense in the income statement, as they fall due. 

Defined benefit scheme – the charge to the income statement is the current 

service, past service, and interest costs of the scheme liabilities, less the 

expected return on the scheme’s assets. 

The obligation in respect of the defined benefit pension scheme represents the 

present value of future benefits owed to employees in return for their service 

in the current and prior periods. The discount rate used to calculate present 

value of those liabilities is the market rate at the balance sheet date of high 

quality corporate bonds having maturity dates approximating to the terms of 

those liabilities. The calculation is performed by a qualified actuary using the 

projected unit credit method at each balance sheet date. 

Past service cost is recognised immediately to the extent that the benefits are 

vested, and otherwise is amortised on a straight-line basis over the average 

period until the benefits become vested. 

The net liabilities of the defined benefit scheme are calculated by deducting 

the fair value of the scheme’s assets from the present value of its obligations, 

and disclosed as a long term liability on the balance sheet. 

Actuarial gains and losses arising in the defined benefit scheme (for example 

the difference between actual and expected return on assets, effects of 

changes in assumptions and experience losses arising on scheme liabilities) 

are recognised in full in the statement of recognised income and expense in 

the period in which they are incurred. 

f. Financial penalties received 

Under the FSMA, the FSA has the power to levy financial penalties, but it is 

required to apply those penalties for the benefit of its fee-payers. The FSA’s 

policy for doing so is to use the penalties received in each financial year to 

reduce the amount owed by fee-payers in the relevant fee block in the 

following financial year. Penalties received are included in current liabilities: 

trade and other payables. 

g. Leasing 

Leases are classified as finance leases whenever the terms of the lease transfer 

substantially all the risks and rewards of ownership to the lessee. All other 

leases are treated as operating leases. 

Rentals payable under operating leases are charged to the income statement 

on a straight line basis over the term of the lease. Benefits received and 

receivable as an incentive to enter into an operating lease are also spread on 

a straight line basis over the lease term.

76 



h. Intangible assets 

Costs associated with the development of software for internal use are 

capitalised only if the design of the software is technically feasible, and the 

FSA has both the resources and intent to complete its development and 

ability to use it upon completion. In addition, costs are only capitalised if the 

asset can be separately identified, it is probable that the asset will generate 

future economic benefits, and that the development cost of the asset can be 

measured reliably. Expenditure on research activities is recognised as an 

expense in the period in which it is incurred. 

Only costs that are directly attributable to bringing the asset to working 

condition for its intended use are included in its measurement. These costs 

include all directly attributable costs necessary to create, produce and prepare 

the asset to be capable of operating in a manner intended by management. 

Internally generated intangible assets are amortised on a straight line basis 

over their expected useful lives, generally between three and seven years with 

the expense reported as an administration expense in the income statement. 

Subsequent expenditure is only capitalised when it increases the future 

economic benefits embodied in the specific asset to which it relates. 

Where no internally generated intangible asset can be recognised, 

development expenditure is charged to the income statement when incurred. 

i. Impairment of tangible and intangible assets 

At each balance sheet date, the FSA reviews the carrying value of its tangible 

and intangible assets to determine whether there is any indication that those 

assets have suffered impairment loss. If any such indication exists, the 

recoverable amount of the asset is estimated in order to determine the extent 

of the impairment loss. 

The recoverable amount is the higher of fair value less costs to sell and value in 

use. In assessing value in use, the estimated future cash flows are discounted to 

their present value using a pre-tax discount rate that reflects current market 

assessments of the time value of money and risks to the specific asset for which 

the estimates of future cash flows have not been adjusted. If the recoverable 

amount of an asset is estimated to be less than its carrying amount, the 

carrying amount of the asset is reduced to its recoverable amount. An 

impairment loss is recognised as an expense immediately. 

When an impairment loss subsequently reverses, the carrying amount is 

increased to the revised estimate of its recoverable amount, but so that the 

increased carrying amount does not exceed the carrying amount that would 

have been determined had no impairment loss been recognised for the asset 

in prior years. A reversal of an impairment loss is recognised as income 

immediately. 

j. Financial instruments 

Trade receivables – Trade receivables are measured at amortised cost. 

Appropriate allowances for estimated irrecoverable amounts are recognised 

in the income statement when there is objective evidence that the asset is 

impaired. The allowance recognised is measured as the difference between 

the asset’s carrying value and the estimated future cashflows deriving from 

the continued use of that asset discounted if the effect is material.



77 

Investments – Cash deposits with a maturity date in excess of 90 days at 

inception are reported at fair value and are not subject to a significant risk of 

changes in value. 

Trade payables – Trade payables are not interest bearing and stated at 

nominal value. 

Financial guarantee contracts – Financial guarantee contracts are initially 

recognised at fair value. Subsequently, they are measured at the higher of an 

amount determined in accordance with the IAS 37 ‘Provisions, contingent 

liabilities and contingent assets’, and the amount initially recognised less, 

where appropriate, cumulative amortisation recognised in accordance with 

IAS 18 ‘Revenue’. 

The company’s financial risk management policy is disclosed on page 51. 

k. Cash and cash equivalents 

Cash and cash equivalents comprise cash in hand, demand deposits and 

other short term liquid investments that are readily convertible to a known 

amount of cash and are subject to an insignificant risk of changes in value. 

l. Provisions 

Provisions are recognised when the FSA has a present obligation as a result 

of a past event, and it is probable that the FSA will be required to settle that 

obligation. Provisions are measured at the directors’ best estimate of the 

expenditure required to settle the obligation at the balance sheet date and are 

discounted to present value where the effect is material. 

Legal challenges 

On occasion, legal proceedings are threatened or initiated against the FSA. 

The FSA provides for the estimated full cost of any such challenges where at 

the end of the year it is more likely than not that there is an obligation to be 

settled. The amount provided is discounted to present value where the effect 

is material. 

m. Taxation 

The tax expense represents the sum of tax currently payable. 

3. Critical accounting judgements and key sources of estimation 

uncertainty 

Critical judgements in applying the Authority’s accounting policies 

In the process of applying the Authority’s accounting policies, which are 

described in note 2, management has made the following judgements that 

have the most significant effect on the amounts recognised in the financial 

statements (apart from those involving estimations, which are dealt with 

below): 

• Intangible assets – under IAS 38, internal software development costs of 

£10.3m have been capitalised. Management judgement has been applied 

in quantifying the benefit expected to accrue to the FSA over the useful 

life of the relevant assets. If the benefits expected do not accrue to the 

FSA, then the carrying value of the asset will require adjustment.

78 



Key sources of estimation uncertainty 

The key assumptions concerning the future and other key sources of 

estimation uncertainty at the balance sheet date, that have a significant risk 

of causing a material adjustment to carrying amounts of assets and liabilities 

in the next financial year are discussed below: 

• Pension deficit – the quantification of the pension deficit is based upon 

actuarial assumptions in relation to rate of increase in salaries, corporate 

bond discount rates, retail price inflation and future pension increases. 

The effect of any change to these assumptions will be accounted for in the 

next financial year through the statement of recognised income and 

expense. 

4. Business and geographical analysis 

Business units 

For management purposes, the FSA is currently organised into four business 

units – Wholesale & Institutional Markets, Retail Markets, Regulatory 

Services and Corporate Services. 

The principal activities for the four business units are as follows: 

Retail Markets – helping retail consumers obtain a fair deal. This business 

unit’s work is aimed at establishing the four main features of an effective and 

efficient retail market: capable and confident consumers; clear, simple and 

understandable information from the industry and the FSA, available for, and 

used by, consumers; responsible firms who treat their customers fairly, are 

soundly managed and adequately capitalised; and risk-based regulation, 

through firm-specific and thematic supervision and policy. 

Wholesale & Institutional Markets – maintaining efficient, orderly and clean 

markets. Much of this business unit’s work is aimed at establishing and 

maintaining high standards in the markets which operate in the UK. This 

embraces questions of disclosure, corporate governance and market 

behaviour, for which the FSA has varying degrees of responsibility and of 

influence, as well as other matters, such as supervision, capital adequacy, or 

the listing regime where the FSA’s responsibilities and powers are 

unambiguous. 

Regulatory Services – making the FSA a more effective organisation. 

Providing an accurate and timely service to firms, consumers and other 

stakeholders (for example, in processing application for waivers and 

guidance, handling calls to our consumer help lines, and in receiving and 

processing regulatory returns). The business unit also manages the FSA’s 

office facilities, IT systems and working capital. 

Corporate Services and Board – provides the resources that the Board 

requires to discharge its stewardship and corporate governance 

responsibilities, and to devise, implement and monitor the FSA’s strategy. 

This includes the cost of the FSA’s enforcement activities. 

Segment information about the FSA’s continuing operations is presented on 

the following page:



79 

2007 Wholesale & Retail Regulatory Corporate Total for 

Year ended 31 March 2007 Institutional Markets Services Services continuing 

Markets and Board operations 

£m £m £m £m £m 

Revenue 

Fees 282.1 282.1 

Sundry income 7.0 1.3 17.0 0.7 26.0 

Result 

Segmental surplus/(deficit) (69.9) (102.8) 244.3 (59.3) 12.3 

Investment revenues 5.1 

Other net finance (cost)/income 1.0 

Surplus before tax 18.4 

Income tax expense (1.5) 

Surplus for year 16.9 

Other information 

Capital additions: 

Tangible 7.9 7.9 

Intangible 10.3 10.3 

Depreciation (9.1) (9.1) 

Amortisation (5.3) (5.3) 

Trade receivables impairment losses recognised (0.6) (0.6) 

Current and past pension service costs (2.1) (2.8) (2.9) (1.9) (9.7) 

2006 (Restated) 

Year ended 31 March 2006 

Revenue 

Fees 265.1 265.1 

Sundry income 5.5 0.9 13.0 3.4 22.8 

Result 

Segmental surplus/(deficit) (64.1) (96.0) 231.9 (66.6) 5.2 

Investment income 4.4 

Other net finance (cost)/income (0.8) 

Surplus before tax 8.8 

Income tax expense (1.3) 

Surplus for year 7.5 

Other information 

Capital additions: 

Tangible 6.1 6.1 

Intangible 4.5 4.5 

Depreciation (8.7) (8.7) 

Amortisation (5.3) (5.3) 

Trade receivables impairment losses (0.7) (0.7) 

Current and past pension service costs (1.8) (2.4) (2.7) (1.6) (8.5)

80 



Balance Sheet analysis 

Whereas the FSA allocates its costs to business segments, as set out above, it 

does not allocate assets and liabilities to those segments. This is for two 

reasons, first as fees are not set on the basis of the costs we incur in 

regulating individual firms, our working capital cannot be allocated to 

business segments, and second as we are not a profit making organisation, 

we do not consider return on capital measures. 

Geographical analysis 

The FSA regulates entities that operate within the UK Financial Services 

Industry including the regulation of foreign domiciled entities operating 

within the UK. The foreign domiciled entities account for less than 10% of 

the fee base of the FSA. No further geographical analysis is presented. 

5. Surplus for the year 

Surplus for the year has been arrived at after charging/(crediting) the 

following, which are included in administrative costs: 

Note 2007 2006 

£m £m 

Depreciation of property, plant and equipment 9.1 8.7 

Amortisation of intangible assets 5.3 5.3 

Staff costs 6 186.7 175.6 

Auditor’s remuneration for audit services (see below). 

RSM Robson Rhodes LLP were the auditor for the full financial year. 

Total fees 12 months to 12 months to 

31 March 2007 31 March 2006 

£’000 % £’000 % 

Fees payable to the FSA’s auditor for 

the audit of the FSA’s annual accounts 79 98 98 68 

Fees paid to the FSA’s auditor or their 

associates in connection with 

non-audit work 

• Secondments – – 46 32 

• Other services 2 2 – – 

Total 81 100 144 100 

All fees payable to the auditor are stated inclusive of VAT, as VAT is not 

generally recoverable by the FSA. 

RSM Robson Rhodes LLP were appointed as auditor on 15 September 2005, 

accepting the appointment on 13 January 2006. Their audit fee for 2005/06 

included non-recurring costs of £21,150 (including VAT) for work 

undertaken by RSM Robson Rhodes LLP in auditing the implementation of 

our decision to adopt IFRS.



81 

The Audit Committee has reviewed the nature and content of non-audit 

work performed by the auditor to ensure that audit independence is not 

impaired. 

In order not to impair the actual and perceived independence of its auditor 

the FSA has a policy of limiting the amount of fees its auditor charges for 

non-audit services to no more than the fee for performing the audit of its 

annual accounts. The FSA’s auditor has announced negotiations for a 

prospective merger with Grant Thornton, to take place on 1 July 2007. 

Should that merger proceed to time, then the combined firm may, at that 

time, be charging fees for non-audit services that exceed the annual audit fee. 

Both the FSA and its auditor are committed to bringing the level of fees for 

non-audit services in-line with its policy on such fees, within a year. 

6. Employee information 

The average number of employees (including executive directors) during the 

year was 2,659 (2006: 2,610). The average number of employees in each 

function during the current year was as follows: 

2007 2006 

(restated 1 ) 

Retail Markets Business Unit 773 738 

Wholesale & Institutional Markets Business Unit 572 556 

Regulatory Services Business Unit 795 819 

Corporate Services and Board (excluding enforcement) 273 261 

Enforcement 246 236 

2,659 2,610 

At 31 March 2007, the FSA had 2,606 (2006: 2,667) employees. 

Employment costs (including executive directors) comprise: 


£m £m 

Gross salaries and taxable benefits 150.6 144.8 

Employer’s National Insurance costs 16.4 13.4 

Employer’s pension costs included 

in administrative costs 19.7 17.4 

5 186.7 175.6 

Employer’s pension income/(costs) 

reported elsewhere 

Included in other finance income/(costs) 15 (1.0) 0.8 

Included in statement of total 

recognised income and expenditure 15 14.2 20.1 

Total employment costs 199.9 196.5 

1 The activities within each Business Unit were subject to some minor changes during the 

year. 2006 comparatives have been restated accordingly.

82 



7. Other revenue 

Other revenue comprises: 


(Restated) 

£m £m 

Information and training services 6.8 8.4 

Application fees and other regulatory income 9.7 10.9 

Other sundry income 9.5 3.5 

26.0 22.8 

8. Tax 

The tax charge on ordinary activities is: 


£m £m 

Current tax on continuing operations 1.5 1.3 

Corporation tax charge for the year 1.5 1.3 

Corporation tax is calculated at 30% (2006: 30%) of the estimated 

assessable surplus for the year. The total charge for the year can be 

reconciled to the accounting surplus as follows: 


£m £m 

Surplus before tax on continuing operations 18.4 8.8 

Tax at 30% thereon 5.5 2.6 

Effects of: 

Activities not subject to corporation tax (4.0) (1.3) 

Current tax charge for the period 1.5 1.3 

Effective tax rate for the period 8% 15% 

Under an agreement with the HM Revenue & Customs the company is not 

subject to corporation tax on income arising from its regulatory activities. 

Consequently, the tax charge arises solely on interest receivable.



83 

9. Intangible assets 

Software Development costs 

£m 

Cost 

At 1 April 2005 16.8 

Additions – internally generated 4.5 

At 1 April 2006 21.3 

Additions – internally generated 10.3 

At 31 March 2007 31.6 

Amortisation 

At 1 April 2005 5.9 

Charge for the year 5.3 


Charge for year 5.3 


Net book value 


At 31 March 2006 10.1 

At 31 March 2007 expenditure totalling £10.0m had been capitalised on 

software developments that had not yet gone into operation (2006: £0.8m).

84 



10. Property, plant and equipment 

Leasehold Computer Furniture and 

improvements equipment equipment Total 

£m £m £m £m 

Cost 

At 1 April 2005 19.8 36.8 10.7 67.3 

Additions 0.1 5.2 0.8 6.1 

Disposals – (0.4) – (0.4) 

At 1 April 2006 19.9 41.6 11.5 73.0 

Additions 0.9 6.8 0.2 7.9 

Disposals – (0.3) (0.2) (0.5) 

At 31 March 2007 20.8 48.1 11.5 80.4 

Accumulated depreciation and impairment 

At 1 April 2005 11.9 25.6 7.7 45.2 

Charge for year 2.0 6.0 0.7 8.7 

Disposals – (0.4) – (0.4) 

At 1 April 2006 13.9 31.2 8.4 53.5 

Charge for year 2.3 5.9 0.9 9.1 

Disposals – (0.2) (0.2) (0.4) 


Carrying amount 


At 31 March 2006 6.0 10.4 3.1 19.5 

The FSA has reviewed the residual values used for the purposes of 

depreciation calculations. The review did not identify any requirement for 

adjustment to the residual values used in the current or prior periods. 

Residual values will be reviewed and updated annually. 

11. Other financial assets 

Trade and other receivables 


£m £m 

Fee receivables 2.4 2.7 

Other debtors 0.9 0.9 

Prepayments and accrued income 7.3 6.3 

10.6 9.9 

The average credit period taken is 50 days (2006: 50 days). A late penalty fee 

of £250 is payable on periodic fees not paid by the due date. If payment is 

not received within 15 days of the due date interest is charged on the 

outstanding balance at Bank of England Repo rate plus 5%.



85 

An allowance has been made for the estimated irrecoverable amounts from 

fees invoiced of £0.5m (2006: £0.7m). This allowance has been determined 

by reference to past default experience. 

The directors consider that the carrying amount of trade and other 

receivables approximates their fair value. 

Cash and cash equivalents 

Bank balances and cash comprise cash held by the FSA and short term bank 

deposits with an original maturity of three months or less. The carrying 

amount of these assets approximates their fair value. 

The effective interest rate on short term deposits is 5.4% (2006: 4.54%) and 

the average maturity of 45 days (2006: 29 days). 

Credit risk 

The FSA’s principal financial assets are bank balances and cash and fee and 

other receivables. The credit risk on liquid funds is limited because the 

counterparties are banks with high credit ratings assigned by international 

credit rating agencies. 

The FSA’s credit risk is primarily attributable to its fee receivables. The 

amounts presented in the balance sheet are net of allowances for doubtful 

receivables. An allowance for impairment is made where there is an identified 

loss event which, based on past experience and management’s forecasts, is 

evidence of a reduction in the recoverability of the cash flows. 

The FSA has no significant concentration of credit risk as its exposure is 

spread over a large number of counterparties. 

12. Trading investments 


£m £m 

Available for sale investments – fair value 1.9 18.2 

Investments relate to cash deposits with an original maturity date in excess of 

90 days. 

13. Trade and other payables 

Current 


£m £m 

Trade creditors and accruals 47.9 46.6 

Other taxation and social security 2.8 2.8 

Financial penalties to be applied against fees receivable 15.6 16.9 

Fees in advance 12.8 6.6 

79.1 72.9 

Trade creditors and accruals principally comprise amounts outstanding for 

trade purchases and ongoing costs. The average credit period taken for trade 

payables is 29 days (2006: 16 days). The directors consider the carrying 

amount of trade payables approximates their fair value.

86 



Non-current 

A lease accrual of £13.1m (2006 £11.9m), being the cumulative difference 

between cash paid and expense recognised on operating leases for land and 

buildings, is recognised as a long term liability. 

At 31 March 2007 the FSA had available £100m (2006: £nil) of undrawn 

committed borrowing facilities in respect of which all conditions precedent 

had been met. The facility was taken out on 26 January and is repayable in 

full on 26 January 2010. The facility is unsecured and carries interest rate at 

0.08% above LIBOR. 

14. Provisions 

Total 

£m 


Utilised in the year (1.2) 

Charge in the year 0.8 


Included in current liabilities – 

Included in non-current liabilities 2.1 

Repairs 

Under the terms of Deed of Variation on the lease for 25 The North 

Colonnade, the FSA has obligations to repair and replace certain items of 

equipment in the premises, in order to maintain the infrastructure of that 

building during the period that we occupy it. The estimated cost of the FSA’s 

remaining obligation is charged to the income statement over the life of the 

lease and the cumulative cost less amounts spent is included in provisions for 

liabilities and charges. 

15. Retirement benefit obligation 

The FSA operates a tax-approved pension scheme, the FSA Pension Plan, 

that is open to permanent employees. The pension scheme was established on 

1 April 1998 and operates on both a defined benefit (the Final Salary 

section) and defined contribution (the Money Purchase section) basis. Since 

1 June 1998, all employees joining the FSA, other than those joining from 

other regulatory bodies whose functions were transferred to the FSA, have 

been eligible only for the Money Purchase section of the scheme. Since the 

Final Salary section of the scheme is closed to new members and the age 

profile of the active members is increasing, under the projected unit credit 

method, the current service cost will increase as members of the scheme 

approach retirement. The Final Salary section of the scheme is noncontributory 

for members. The Money Purchase section is part of a flexible 

benefits programme and members can, within limits, select the amount of 

their overall benefits allowance that is directed to the pension scheme.



87 

Final Salary section 

The most recent actuarial valuation of the FSA Pension Plan was carried out 

as at 1 April 2004 by an independent actuary, using the projected unit 

method. The results of this valuation have been updated for the purpose of 

IAS 19 as at March 2007, in order to allow for any changes in assumptions 

and movements in liabilities over the period. The next full actuarial valuation 

is expected to be carried out as at 1 April 2007, and should be available 

during 2007/08. 

The major assumptions used for the purpose of actuarial assumptions were 

as follows: 

At At 

31 March 31 March 


Expected rate of salary increases 4.0% 4.0% 

Corporate bond discount rate 5.2% 4.9% 

Expected return on scheme assets 7.3% 6.9% 

Retail price inflation (RPI) 3.0% 2.8% 

Future pension increases 2.9% 2.8% 

In assessing the value of funded obligations, the mortality assumptions for 

the Pension Plan are based on current mortality tables and allows for future 

improvements in life expectancy. The 2007 mortality assumptions are based 

on an actuarial table ‘PA1992, projected to allow for future improvements 

using medium cohort projections and by an individual’s year of birth’. The 

2006 mortality assumptions were based on an actuarial table PA92c2010 for 

current pensioners and PA92c2030 for future pensioners. 

The table below illustrates the assumed life expectancies at retirement of staff 

when they retire (staff are assumed to retire at the age of 60). 


years years 

Retiring today 

Males 26.7 23.5 

Females 29.7 26.5 

Retiring in 15 years 

Males 27.7 25.2 

Females 30.5 28.2 

The amount recognised in the balance sheet is as follows: 


£m £m 

Fair value of plan assets 289.1 250.6 

Less: Present value of funded obligations (367.1) (340.1) 

Deficit in the scheme (78.0) (89.5) 

Unfunded pension liabilities (1.9) (1.8) 

Net liability recognised in the balance sheet (79.9) (91.3)

88 



A small number of current and former employees have benefit promises that 

cannot be delivered entirely through the tax-approved scheme described 

above. At 31 March 2007 the liability is £1.9m (2006: £1.8m) to cover the 

cost of these promises. An amount of £0.1m (2006: £0.4m) is included in the 

total pension cost for the year in note 6, representing the value of the 

additional benefits accrued. 

Amounts recognised in the income statement in respect of the defined benefit 

plan are as follows: 


£m £m 

Current service cost 9.4 8.2 

Past service cost 0.3 0.3 

Administration expenses 9.7 8.5 

Expected return on plan assets 18.0 13.7 

Interest on scheme liabilities (17.0) (14.5) 

Other finance income / (costs) 1.0 (0.8) 

Current service costs and past service costs are disclosed as administration 

expenses, expected return on plan assets and interest cost are disclosed as 

interest income in the income statement and actuarial gains and losses of 

£14.2m (2006: £20.1m) are recognised in the period in which they occur as 

part of the Statement of recognised income and expense. 

The actual return on plan assets was £9.3m (2006: £52.5m). 

Changes in the present value of the defined benefit obligation are as follows: 


£m £m 

Opening obligation (340.1) (261.1) 

Current service cost (9.4) (8.2) 

Past service cost (0.3) (0.3) 

Benefits paid 5.2 2.9 

Interest cost (17.0) (14.5) 

Actuarial losses (5.5) (58.9) 

Closing obligation (367.1) (340.1)



89 

Changes in the fair value of plan assets are as follows: 


£m £m 

Opening fair value of plan assets 250.6 182.2 

Expected return on plan assets 18.0 13.7 

Actuarial (losses)/gains (8.7) 38.8 

Contributions by the employer 34.4 18.7 

Benefits paid (5.2) (2.8) 

Closing fair value of plan assets 289.1 250.6 

The fair value of plan assets and the expected rates of return were: 

Expected 

Expected 

rate of Fair value rate of Fair value 

return at at 31 March return at at 31 March 

31 March 2007 31 March 2006 

2007 £m 2006 £m 

Equities 7.9% 180.8 7.4% 199.3 

Corporate Bonds 5.4% 68.4 4.9% 45.1 

Property 7.9% 26.4 – – 

Currency Management 7.9% 11.1 – – 

Cash 5.25% 2.4 4.5% 6.2 

Closing fair value of plan assets 7.3% 289.1 6.9% 250.6 

Cumulative actuarial losses recognised in equity: 


£m £m 

1 April (23.9) (3.8) 

Net actuarial losses recognised in the year (14.2) (20.1) 

At 31 March (38.1) (23.9) 

There are no deferred tax implications of the above deficit as corporation tax 

is only payable on interest receivable by the company. 

The plan assets do not include any of the FSA’s own financial instruments, 

nor any property occupied by, or other assets used by the FSA. 

The expected rates of return on individual categories of plan assets are 

determined by reference to relevant market expectations at the beginning of 

the period for returns over the lifetime of the obligations.

90 



The history of differences between expected and actual returns on plan assets 

and gains and losses on scheme liabilities are as follows: 

2007 2006 2005 

Defined benefit obligation (£m) (367.1) (340.1) (261.1) 

Fair value of plan assets (£m) 289.1 250.6 182.2 

Net deficit (£m) (78.0) (89.5) (78.9) 

Experience adjustments on scheme assets: 

Amount (£m) (8.7) 38.8 2.4 

percentage of scheme assets 3.0% 15.5% 1.3% 

Experience gains and losses on scheme liabilities: 

Amount (£m) (0.7) 0.1 (0.3) 

percentage of the present value 

of scheme liabilities 0% 0% 0% 

The contribution rate for 2006/07 was 23.7% of pensionable earnings plus 

£26.0m (75.5% of pensionable earnings) as an additional deficit reduction 

contribution. The agreed contribution rate for 2007/08 is 23.0% of 

pensionable earnings plus £2.5m (approximately 7.4% of pensionable 

earnings) as an additional deficit reduction contribution. 

Defined contribution scheme 

The total expense recognised in the income statement of £8.7m (2006: 

£7.9m) represents contributions payable to the plan by the FSA at rates 

specified in the rules of the plan. 

16. Accumulated deficit 

£m 

At 1 April 2005 (71.5) 

Surplus for the year 7.5 

Actuarial gains and losses for the year in respect 

of the defined benefit pension scheme (20.1) 

At 1 April 2006 (84.1) 

Surplus for the year 16.9 

Actuarial gains and losses for the year in 

respect of the defined benefit pension scheme (14.2) 

(81.4) 

The Financial Services Authority is a company limited by guarantee. The 

members of the company have agreed to contribute £1 each to the assets of 

the company in the event of it being wound up. 

17. Capital commitments 

The FSA had entered into contracts at 31 March 2007 for capital 

expenditure totaling £1.8m (2006: £0.5m), which are not provided for in the 

accounts.



91 

18. Operating lease arrangements 


£m £m 

Minimum lease payments under operating leases 

recognised as an expense in the year 11.8 10.6 

At the balance sheet date, the FSA has outstanding commitments for future 

minimum lease payments under non-cancellable operating leases, which fall 

due as follows: 


£m £m 

Within 1 year 12.2 11.0 

In the second to fifth years inclusive 46.9 43.9 

After five years 83.7 96.5 

142.8 151.4 

Operating lease payments represent rentals payable by the FSA for certain of 

its office properties. 

The lease on 25 The North Colonnade, Canary Wharf, London will expire in 

2018. Under the terms of the lease, the rent for the period from 4 November 

2003 to 3 November 2004 was agreed at £9.5m. Thereafter, the rent payable 

until 3 November 2008 will increase by 2.5% each year. From 4 November 

2008 until 3 November 2018 rent will increase in line with RPI subject to a 

minimum annual increase of 2.5% per annum and a maximum of 5% per 

annum. As mentioned in note 15, our current assumptions for RPI is 3.0%. 

The lease on 15th Floor, 25 Bank Street, Canary Wharf, London, was taken 

out in January 2007 and contains no provisions for rent reviews. The lease 

will expire in 2008. 

The lease on 16th Floor, 25 Bank Street, Canary Wharf, London, was taken 

out in March 2005 and contains no provisions for rent reviews. The lease 

will expire in 2008. 

The lease on Quayside, Edinburgh was taken out in September 2005, 

contains provision for a rent review in September 2010 and September 2015 

and is due to expire in August 2020. 

19. Related party transactions 

Remuneration of key management personnel 

The remuneration of directors, who are the key management personnel of 

the Authority, is set out below in aggregate for each of the categories 

specified in IAS 24 Related Parties Disclosures. Further information on 

individual directors is provided in the audit part of the corporate governance 

statement on pages 60 to 67.

92 




£m £m 

Short term benefits 2.7 2.5 

Post-employment benefits 0.3 0.1 

3.0 2.6 

There were no other transactions with directors in either year. 

Significant transactions with other financial services regulatory organisations 

The FSA enters into transactions with a number of other financial services 

regulatory organisations. The significant transactions were: 

a) The Financial Services Compensation Scheme Limited (FSCS) 

The FSA appoints, and has the right to remove, directors to the board of 

FSCS and it establishes the rules under which the Scheme operates. Under 

statute (FSMA) and the Memorandum of Association of FSCS, the FSA has 

to ensure that the terms of appointment of the directors procure their 

operational independence from the FSA. Accordingly, the FSA does not 

control FSCS, but does consider it to be a related party. 

During the year, the FSA provided an agency service to FSCS to collect tariff 

data, issue levy invoices and collect levy monies on its behalf. The net 

amount of fees collected that remained to be paid over by the FSA to FSCS 

at 31 March 2007 was £0.3m (2006: £0.1m). The charge for the service was 

£0.2m (2006: £0.2m). 

The FSA is a party to the lease agreement for FSCS’s premises, occupied from 

18 June 2001 at the 7th floor at Lloyds Chambers, Portsoken Street, 

London, as guarantor of performance of the lease. This lease is for a term 

from 13 February 2001 to 21 June 2018 at a current annual rental and 

related out-goings of £1.1m. This guarantee was provided when the FSCS 

was in its start-up phase, ahead of its formal fee-raising powers being 

granted under the FSMA. The FSCS did not provide any consideration in 

return for that guarantee. As there is not an active market for such 

guarantees of this nature, no valuation technique could be used to calculate a 

fair value. Consequently, given the lack of consideration, and the strength of 

the financial covenant of both the FSCS funding arrangements, no fair value 

was assigned on inception. 

b) The Financial Ombudsman Service Limited (FOS) 

The FSA established FOS, a company limited by guarantee, in accordance 

with FSMA to exercise the functions of the operator of the ombudsman 

scheme. Under the FSMA and the Memorandum of Association of FOS, the 

FSA has to ensure that the terms of appointment of the directors procure 

their operational independence from the FSA. Accordingly, the FSA does not 

control FOS, but does consider it to be a related party.



93 

The FSA is the principal employer in the FSA Pension Scheme described in 

note 15. FOS is also a participating employer in the same scheme making 

contributions at the same overall rate as the FSA. The assets and liabilities 

disclosed in note 15 represent only those that relate to the employees of the 

FSA. The total number of scheme members is 2,209 (2006: 2,237) of which 

2,069 are, or were, employees of the FSA (2006: 2,098) and 139 of the FOS 

(2006: 139). 

In 2005/06 the FSA entered into an agency agreement with FOS to collect 

tariff data, issue levy invoices and collect levy monies on its behalf in respect 

of its fees for 2006/07 onwards. The charge for that service is £0.1m. At 31 

March 2007 £1.1m of on-account fees for 2008/09 had been collected but 

not paid to FOS (£1.0m at 31 March 2006). 

The FSA is a party to the lease agreement for part of the FOS premises at 

South Plaza II, London as guarantor of performance of the lease, which is for 

a 15-year term from 2 November 1999, at a current annual rental of £1.1m. 

FOS has a revolving loan facility of £15m (2006: £15m) available for draw 

down from 24 January 2003 and repayable by 2011. Amounts outstanding 

under the facility are guaranteed by the FSA. As at 31 March 2007, £7.5m 

(2006: £7.5m) of the facility was drawn down. Both those guarantees were 

provided when the FOS was in its start-up phases, ahead of its formal feeraising 

powers being granted under the FSMA. The FOS did not provide any 

consideration in return for those guarantees. As there is not an active market 

for such guarantees of this nature, no valuation technique could be used to 

calculate a fair value. Consequently, given the lack of consideration, and the 

strength of the financial covenant of the FOS funding arrangements, no fair 

value was assigned on inception. 

The Office of the Complaints Commissioner 

The FSA funds the activities of the Complaints Commissioner through the 

periodic fees it raises. Up to 31 August 2004, the costs of those activities 

were met directly by the FSA. In August 2004, however the Office of the 

Complaints Commissioner (OCC), a company limited by guarantee, was 

incorporated. Since 1 September 2004, the purpose of this company has been 

to administer complaints against the FSA that are handled by the Complaints 

Commissioner. In doing so, it employs staff, owns assets used by the 

Commissioner and his staff, and enters into contracts for goods and services 

in furtherance of complaints handling activities. During 2006/07, the FSA 

has transferred £0.4m (2006: £0.5m) to the OCC to cover the latter’s 

running costs, which have been expensed in the FSA’s income statement. 

At 31 March 2007, the balance owing to the FSA from the OCC was £0.1m 

(2006: £0.1m). 

By virtue of certain provisions contained in the Memorandum of Association 

of the OCC the FSA has the right to appoint and remove the Complaints 

Commissioner, who is both a member, and a director of the company. 

Because of this, the OCC is actually a subsidiary of the FSA. However, the 

scale of the activities of the OCC is immaterial compared to that of its parent 

company. Accordingly, the FSA has not prepared group accounts, including 

the OCC, on the grounds that the exclusion of the OCC from the FSA’s 

accounts is not material to those accounts providing a true and fair view. 

Other than disclosed above, there were no related party transactions during 

the year (2006: £ nil).

94 



20. Contingent Liabilities 

As described in note 19 the FSA acts as guarantor for leases entered into by 

FSCS and FOS, and also the banking loan facility of FOS. Given the strength 

of those organisations’ fee-raising arrangements, no liabilities are expected to 

crystallise in respect of those guarantees. 

The FSA is aware that certain parties are considering the possibility of 

making claims against it relating to the regulation of Independent Insurance 

Limited and Equitable Life. No material claims have been made against the 

FSA. On the basis of the information presently available to it, the FSA 

believes that any claims would have no real prospect of success. Accordingly, 

no provision has been made in the accounts for these matters. 

21. Notes to the cash flow statement 


£m £m 

Surplus for the year from continuing operations 16.9 7.5 

Adjustments for: 

Interest received on bank deposits (5.1) (4.4) 

Corporation tax expense 8 1.5 1.3 

Amortisation of other intangible assets 9 5.3 5.3 

Depreciation of property, plant and equipment 10 9.1 8.7 

Decrease in provisions 14 (0.4) (0.4) 

Difference between pension costs and 

normal contributions 0.5 1.5 

Additional cash contributions to reduce 

pension scheme deficit 16 (26.0) (10.5) 

Operating cash flows before movements 

in working capital 1.8 9.0 

(Increase) / decrease in receivables 11 (0.7) 8.6 

Increase in payables 7.4 10.8 

Net cash generated from operations 8.5 28.4 

Cash and cash equivalents comprise cash at bank and other short term highly 

liquid investments with a maturity of three months or less.

Section five – Statement of allocation of costs 


95 

Statement of allocation of costs for the year ended 31 March 2007 

Introduction 

The FSA sets fees by reference to blocks of fee payers conducting similar 

activities, which so far as possible, reflect the FSA’s costs applicable to the 

respective fee blocks. The statement of allocation of costs on page 98 shows 

the allocation of costs for the year ended 31 March 2007, analysed by those 

fee blocks. 

Costs are allocated according to the method set out in note 1 on page 96. 

The report of the auditors is set out on page 99.

96 



Notes to the statement of allocation of costs for the year ended 

31 March 2007 

1 Method of allocation 

The Financial Services and Markets Act 2000 provides that the FSA may 

make rules providing for the payment of fees to meet its expenses in carrying 

out its function, or for any incidental purposes and to maintain adequate 

reserves. 

Under the current fee-raising arrangements, the FSA’s fees are set by 

reference to costs applicable to categories of firms or bodies or individual 

bodies (fee-payers). These categories are known as fee blocks. The 

allocation of costs to fee blocks is primarily made by reference to costs 

applicable to each fee payer. Where costs cannot be directly attributed to 

individual fee payers they have been allocated to fee blocks on a basis 

considered appropriate by the Directors, such as on the headcount of 

departments, or the estimated time or resources spent on the supply of 

services for each fee payer within departments. 

2 Allocation of net liabilities, excluding pensions liabilities 

We apply IAS 19 in accounting for the costs of our defined benefit pension 

scheme. Given the long term nature of our final salary pension liabilities, and 

the fact that we cannot predict with certainty how our resources will be 

allocated over this time scale, we do not allocate those pensions liabilities to 

fee blocks. 

3 Reconciliation from the income statement to net costs for the year 

as shown on the cost allocation statement 

Year ended 

31 March 2007 

£m 

Net costs for the year 265.2 

Add: difference between accounting changes for provisions in the 

statutory accounts and the related cash costs of pension 

contributions paid 5.6 

Less: costs of implementing principles-based regulation (1.5) 

Net costs for the year on statement of allocation of costs 269.3



97 

While adopting IAS 19 provides greater transparency of the impact of 

pension costs on our financial position, it introduces significant volatility into 

both the figures reported in our income statement and in our balance sheet. 

In order to prevent IAS 19 transmitting this volatility into our fee 

calculations, we exclude any non-cash elements of pension costs from our 

Annual Funding Requirement (AFR). The main non-cash item excluded is 

the net finance cost £1m. Our AFR is calculated to include only the cash 

value of the pension contributions we need to make in a year to cover the 

increase in the scheme’s final salary liabilities due to additional years’ service 

and to salary increases. Also, the AFR includes any deficit reduction 

contributions aimed at reducing the size of the scheme’s deficit to ensure that 

it can meet its obligations. This is consistent with the fact that, as mentioned 

above, we have not allocated the pensions liabilities to fee blocks. 

Full details of the calculation of the AFR for 2007/08 are included in 

Consolidated Policy Statement on our fee-raising arrangements and 

regulatory fees and levies 2007/08, including feedback on CP07/3 and ‘made 

rules’, published in May 2007.

98 



Statement of allocation of costs for the year ended 31 March 2007 

Fee Block 

Net assets/ 

(liabilities), 

Net assets, Funding excluding 

excluding pensions principles- pensions 

obligation, at Net costs Pensions Fees for based obligation, at 

1 April 2006 for the year amortisation the year regulation 31 March 2007 

£m £m £m £m £m £m 

A.1 Deposit acceptors 3.3 (52.8) (0.9) 58.4 (3.0) 5.0 

A.2 Mortgage lenders and administrators (0.6) (5.6) (0.1) 5.8 (0.3) (0.8) 

A.3 General insurers (0.8) (14.2) (0.3) 15.8 (0.8) (0.3) 

A.4 Life insurers 1.0 (39.4) (0.7) 40.8 (2.2) (0.5) 

A.5 Lloyd’s Managing Agents (0.2) (1.0) – 0.8 (0.1) (0.5) 

A.6 The society of Lloyd’s 0.1 (1.0) – 1.1 (0.1) 0.1 

A.7 Fund managers 1.8 (24.6) (0.4) 26.6 (1.4) 2.0 

A.9 CIS operators, trustees and depositories 0.5 (3.3) (0.1) 4.7 (0.2) 1.6 

A.10 Firms dealing as principal 0.1 (14.4) (0.3) 12.9 (0.8) (2.5) 

A.12 Advisory arrangers holding client money 

and/or assets 0.3 (18.0) (0.3) 17.8 (1.0) (1.2) 

A.13 Advisory arrangers not holding 

client money and/or assets 2.8 (37.9) (0.7) 36.3 (2.1) (1.6) 

A.14 Corporate Finance Advisors 0.8 (5.5) (0.1) 5.5 (0.3) 0.4 

A.18 Mortgage lenders, advisers, and arrangers (1.1) (11.0) (0.2) 10.2 (0.6) (2.7) 

A.19 General insurance mediation (1.0) (27.1) (0.5) 29.8 (1.5) (0.3) 

B RBs 0.3 (3.4) (0.1) 3.6 (0.2) 0.2 

C CIS 0.1 (1.4) – 1.4 (0.1) – 

D DPBs 0.3 (0.2) – 0.2 – 0.3 

E UKLA (0.5) (6.8) (0.1) 9.1 (0.4) 1.3 

F Registrant only – (1.7) – 1.3 (0.1) (0.5) 

Total 7.2 (269.3) (4.8) 282.1 (15.2) – 

Less: costs incurred in introducing principles-based regulation (1.5) 

Net deficit excluding pensions obligation (1.5) 

The fee block descriptions above have been summarised for the purposes of this statement. A full description of the fee 

block can be found in the relevant section of the FSA’s Handbook.



99 

Report by independent auditors to the directors of the Financial 

Services Authority on the statement of allocation of costs 

We have examined the statement of allocation of costs to regulated fee 

payers (‘the Statement’) for the year ended 31 March 2007 and the related 

notes 1 to 3, as prepared by the directors of the company. The Statement has 

been prepared on the basis set out in note 1. 

This report is made solely to the directors of the company. To the fullest 

extent permitted by law, we do not accept or assume responsibility to anyone 

other than the company and the directors of the company, as a body, for our 

review, for the statement, or for the opinions we have formed. 

Respective responsibilities of directors and 


The company’s directors are responsible for the assumptions and basis on 

which the costs are allocated to fee payers and the preparation of the 

Statement in accordance with note 1. We have performed certain 

procedures on the Statement, in accordance with our engagement letter 

dated 2 December 2005, to verify that the assumptions made by the 

directors have been applied to the allocated amounts. 

Basis of opinion 

The procedures we performed did not constitute a review or an audit of any 

kind and consisted primarily of verifying whether the figures in the Statement 

have been compiled from amounts extracted from the company’s accounting 

records, and in accordance with the basis set out in note 1. 

The procedures we performed were not designed to and are not likely to 

reveal fraud and there is no assurance that our procedures will reveal all 

matters of significance related to the Statement. 

Opinion 

In our opinion, the Statement has been compiled from amounts extracted 

from the accounting records and has been prepared in accordance with the 

basis set out in note 1. 


Chartered Accountants 

London 

25 May 2007

100 

Appendices 


Appendices 

The following appendices will appear on our website only: 

www.fsa.gov.uk/Pages/Library/Corporate/Annual/Index.shtml 

One 

Two 

Costs of regulatory authorities in other jurisdictions 

Accountability 

The FSA's response to: The Practitioner Panel 

The Smaller Businesses Practitioner Panel 

The Consumer Panel 

Three Complaints against the FSA 2006/07 

Four 

The FSA’s response to the Complaints Commissioner’s 

Annual Report for 2006/07 

Five Enforcement activity 2006/07 

Six 

Seven 

Performance against 2006/07 Business Plan Milestones 

Statistics 

Registered Number 1920623

Section six – Appendices 

Appendix 1 

101 

Appendix 1: 

Costs of regulatory authorities in other jurisdictions 

Table of indicators 

Most of the data in the following table were obtained directly from the 

regulatory agencies named there. In producing the table we were aware that: 

• figures do not all relate to the same accounting period and may not be 

compiled on the same basis; 

• labour and other costs vary between countries; 

• variations in exchange rates will affect results expressed in a single 

currency; 

• in some countries not all organisations involved in financial regulation 

have provided data; 

• the nature and extent of the responsibilities of the various regulatory 

agencies differ materially; and 

• the nature and scale of the financial services industries in different 

countries differs materially. We have included some figures that indicate 

the size of countries’ financial services sectors, but these can only be 

regarded as indicative. 

Because of the factors listed above, we caution against using the table to 

conclude that regulation in any individual country is more cost-efficient than 

regulation in any other country. 

It should also be noted that the direct costs of regulation incurred by the 

agencies in the table reflect just some of the total costs that regulation 

imposes upon the economies concerned. Where an agency has higher costs 

that reflect additional resources, it may be able to lower the other costs that 

regulation imposes. 

The figures shown in the table are all in sterling. Information on regulatory 

costs received in foreign currencies was translated into sterling at the rate 

ruling on 5 April 2007 (apart from those received from the Monetary 

Authority of Singapore, which were translated on 14 May 2007).

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Appendix 1 

103 

Area of responsibility 

France 

Germany 

Hong Kong 

Irish Republic (Note 4) 

Singapore (Note 11) 

UK 

USA 

Credit institutions – 

prudential supervision 

Commission Bancaire (CB): 

£38m, 593.2 staff 

Federal Financial Supervisory Authority 

(FFSA): £31m, 661 staff 

Hong Kong Monetary Authority 

(HKMA): £13m, 224 staff 

Irish Financial Services 

Regulatory Authority 

(IFSRA): £11m 

Monetary Authority of Singapore 

(MAS): £12m, 214 staff 

Financial Services Authority (FSA): 

£53m 

Federal Reserve (FED) £342m, 3,062 staff 

Federal Deposit Insurance Corporation (FDIC): 

£426m, 3,886 staff 

Office of the Comptroller of the Currency (OCC): 

£291m, 2,812 staff 

Insurance companies 

(life, pensions and non-life) – 


Autorite de Controle des Assurances 

et des Muttuelles (ACAM): 

£18-19m (2006) 184 staff (2006) 

FFSA: £18m, 382 staff 

Office of The Commissioner of 

Insurance (OCI): £6m, 93 staff 

IFSRA: £7m 

MAS: £4m, 65 staff 

FSA: £28m 

National Association of Insurance Commissioners 

(NAIC): £544mn, 11,478 staff 

Securities firms and fund 

management firms – 


FFSA: £27m, 566 staff 

Securities and Futures Commission 

(SFC): £10m, 143 staff 

IFSRA: £2m 

Singapore Exchange (SGX): £5m, 

103 staff (Note 8) 

MAS: £6m, 112 staff (Note 12) 


Securities and Exchange Commission (SEC): 

£447m, 3,788 staff 

Nat ional Association of Securities Dealers (NASD): 

£310m, 2,425 staff 

Commodity Futures Trading Commission (CFTC): 

£49m, 490 staff 

National Futures Association (NFA): £18m, 

267 staff (Note 6) 

Supervision of and standards for 

exchanges / clearing and settlement 

systems / market service providers 

FFSA: Costs included above 

Bundesbank 

HKMA: £454,000, 6 staff (Note 1) 

SFC: £10m, 116 staff 

IFSRA: £203,000 

SGX: Included in the above 

MAS: £699,000, 14 staff 


NASD: Costs included above 

CFTC: Costs included above 

Supervision of, and standards 

of conduct on, capital markets 

(including transaction reporting 

but excluding exchange’s own rules) 


SFC: £5m, 56 staff 

SGX: Included in the above 

MAS: £2m, 28 staff 




Standards for / approval of listing 

of securities 


SGX: £1m, 31 staff (Notes 7 & 8) 



Regulation of collective investment 

schemes / fund management 


IFRSA: £5m 



Regulation of financial advice / 

advisers and of the selling / 

marketing of retail financial 

products (excluding occupational 

pension schemes 

ACAM: Costs included above 


IFRSA: £4m 

MAS: £899,000, 18 staff 


Financial Ombudsman Service 

(FOS): £55m 

Financial Services Compensation 

Scheme (FSCS): £13m 



Office of Thrift Supervision (OTS): £118m, 

969 staff 

Regulation of Credit Unions 


IFRSA: £2m 


National Credit Union Administration (NCUA): 

£72mm, 929.79 staff 

Regulation of the provision of 

mortgages 


IFRSA: Cost include above 


Total costs of regulators 

£56-57m 

£76m (Note 3) 

£44m 

£32m (Note 5) 

£31m 

£312m 

£2,617m 

Total staff in regulatory agencies 

777.20 

1,609 

638 

350 

585 

Total staff for FSA: 2,659 

FOS: 1,000 FSCS: 108 

30,106.79 

Total banking assets 

£4,845bn (2006) 

HKMA: £538bn 

£797bn 

£478bn 

£6,009bn (Note 10) 

Total equity market capitalisation 

£841bn (2006) 

£850bn 

£81bn 

£158bn – provided by MAS only 

(Note 13) 

£9tr (Note 2) 

Total insurance premiums 

£181bn (2005) 

£114bn (End of Yr 2005 

excluding re-insurance) 

£10bn 

£21bn 

£6bn – provided by MAS only 

£671bn

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Appendix 1 

Notes to the table 

Note 1 

Compliance monitoring of 

designated clearing and settlement 

systems is in accordance with the 

Clearing and Settlement Systems 

Ordinance. 

Note 2 

The total ‘Equity Market 

Capitalisation’ Figure of $17.7 

trillion (£9tr) was provided by 

the SEC. 

Note 3 

According to section 7 of the 

Banking Act (5 January 2007), 

BaFin closely cooperates with the 

Deutsche Bundesbank in carrying 

out the supervision of banks and 

investment firms in Germany. The 

costs of the Deutsche Bundesbank in 

the area of supervision cannot be 

clearly attributed because of the dual 

function of the Banking and 

Financial Supervision Department, 

which has mainly banking 

supervisory functions, but is also 

involved in monetary policy issues. 

Note 4 

The figure reported for the IFSRA 

comprises direct costs (pay and nonpay) 

of supervision (prudential, 

consumer and support departments) 

together with a partial allocation of 

costs for shared services (IT, HR, 

Corporate Services etc). 

Note 5 

Related to staff directly involved in 

regulation. Also includes e0.2m 

worth of costs not falling into the 

above categories, classified as ‘Other’ 

by the IFSRA. Does not include 

indirect staff involved in provision of 

shared services. Comprises direct costs 

(pay and non-pay) of supervision 

(prudential, consumer and support 

departments) together with allocation 

of costs for shared services (IT, HR, 

Corporate Services etc). 

Note 6 

NFA figures provided are for the 

NFA’s Fiscal Year 2007: 1 July 2006 

to 30 June 2007. Thus, they are 

projected costs. The figure of 

$36,100,000 excludes projected 

capital spending of $1,000,000; it 

does include non-cash admin 

expenses (i.e. depreciation expense) 

of $1,800,000. 

Note 7 

This activity is the responsibility of 

the Singapore Exchange (SGX). 

Note 8 

SGX’s cost for the period January 

2006 to December 2006. Out of 

which S$3.8 million relates to SGX's 

approval of listing. 

Note 9 

The Total Equity Market 

Capitalisation figures provided by 

MAS in 2005/06 were shown 

incorrectly in the FSA 2005/06 

Annual Report. The figure was 

presented as £355bn. The correct 

figure should have read £187bn. 

Note 10 

Source: FDIC Quarterly Banking 

Profile – Table III-A Full Year 2006, 

All FDIC – Insured institutions. 

Note 11 

Figures provided by MAS relate to 

the period, 1 April 2005 to 31 March 

2006 and include allocated costs 

from central banking and support 

functions such as HR, Finance, IT, 

Internal Audit, etc as well as imputed 

rental and depreciation. 

Note 12 

Includes the costs of supervision of 

market conduct of securities firms 

and fund management firms, costs 

of regulation of prospectuses and 

collective investment schemes, and 

costs of the market surveillance, 

investigation and enforcement 

function. 

Note 13 

The March 2006 market 

capitalisation figure is not directly 

comparable with previous years' 

figures as there has been a change in 

Singapore Exchange Securities 

Trading Limited's methodology for 

computation of market capitalisation 

since May 2005. For more 

information, please refer to SGX's 

website www.sgx.com.


Appendix 2 

105 

Appendix 2: Accountability 

The FSA’s response to the Practitioner, 

Smaller Businesses Practitioner and Consumer Panels 

Response to the Annual Report for 2006/07 

of the Practitioner Panel 

Introduction 

In its Annual Report for 2006/07 the Panel comments on a range of our 

policies, plans and activities. We welcome the Panel’s support for particular 

aspects of our work, including more principles-based regulation and financial 

capability. In this response we focus on those topics on which the Panel 

expresses concerns or criticism. 

More principles-based regulation 

We welcome the Panel’s support for our move to more principles-based 

regulation. We agree that this approach will pose challenges – both for our 

people and the industry – and we have been working throughout the year 

with our stakeholders to address these. One of our key priorities has been to 

articulate clearly what a more principles-based regime means and the actions 

needed to get there. As the Panel notes, in April we published a paper to 

explore the challenges and opportunities for us as a regulator, the industry 

and consumers. 

We agree that in a more principles-based environment it will be important 

for our people to make judgements about whether a firm meets our 

requirements in the outcomes it delivers. One of the ways we are addressing 

this is by developing a knowledge management strategy for the efficient and 

effective use of the information we hold throughout the organisation. As the 

Panel has acknowledged, we are also taking steps to improve the 

effectiveness of our people. This includes increasing our spending on training 

and development, and continuing to recruit people with direct experience of 

the financial services industry. 

One way in which we can help firms understand what principles-based 

regulation means in practice is to publish examples of practices we do and 

do not consider meet our high-level requirements. We recognise that the 

status of our materials must be clear. As we have explained, whether we 

publish material in our Handbook or as less formal supporting material does 

not affect the extent to which a firm can rely on the material. Rather, it is a 

factor in our own consideration of how much reliance to place on the 

material.

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Appendix 2 

It is also, of course, important that firms and their advisers are able to access 

and stay abreast of our statements and publications; as we have previously 

announced, we are working to deliver new technological solutions that will 

enable them to do this. 

We recognise that as we introduce more high-level rules into our Handbook 

some industry groups may wish to produce their own supplementary 

guidance. In our view it is for the industry to initiate and drive the 

production of any such material. In September 2007 we will publish a Policy 

Statement setting out our future approach on industry guidance; we believe 

this will address many of the Practitioner Panel’s concerns. We agree with the 

Panel on many aspects of the use of such guidance; complying with it must 

be voluntary, and we acknowledge the resource implications for trade 

associations of producing this material. It is of course not the role of trade 

associations to monitor compliance with guidance. We agree that we must 

explain clearly to firms the status and meaning of our confirmation of 

industry guidance. 

One of the topics we discussed in some depth at the recent conference, and 

which will be discussed in more detail in our proposed Enforcement Guide 

on which we have recently consulted, is the role of enforcement in a more 

principles-based regime. Concerns have been expressed about the impact that 

enforcement actions may have in a less prescriptive, more principles-based 

environment. We are not looking to trip firms up; we take account of a firm’s 

behaviour and its positive engagement with desired regulatory outcomes 

when considering the most appropriate course of action. We cannot use 

hindsight or apply later, higher standards retrospectively when deciding 

whether to take enforcement action. We acknowledge that when we publish 

details of our enforcement decisions in cases based on breach of Principles 

only, we must explain clearly the basis on which we took action, and we 

must ensure that our application of the Principles is consistent. 

We maintain a dialogue with the FOS about principles-based regulation and 

about industry guidance in particular, and we will say more about this in our 

September Policy Statement. Where a FOS decision has a wider application 

we work proactively with the ombudsman service within the framework of 

the ‘wider implications’ process. 

Costs of regulation 

The Deloitte cost of regulation report, published in June 2006, encouragingly 

confirmed that much of what regulation requires is good business practice. 

As the Panel notes, most of the rules identified as imposing the highest 

incremental costs were in the retail investment and pension advice sector, and 

related to point of sale disclosure. Alongside the Deloitte report we published 

a progress report on our Better Regulation Action Plan. This included our 

plans to use the results of the Deloitte study to assess the benefits of the 

regulatory requirements that generate the highest incremental costs (and that, 

for example, are not required to remain in place as part of the 

implementation of a Directive). By the end of 2008 we expect to have 

reviewed rules giving rise to over 80% of the administrative regulatory costs 

identified in our studies.


Appendix 2 

107 

We have demonstrated, through the significant simplification of our conduct 

of business rules and our recent decision on the Menu, our commitment to 

move away from detailed, prescriptive rules. This will give firms greater 

flexibility in meeting our regulatory standards. However, as we have 

highlighted in our Annual Report, we continue to find too many instances of 

retail firms not treating their customers fairly. While this remains the case, 

regulatory intervention will continue to be necessary. 

Financial Services Compensation Scheme (FSCS) 

In March 2007 we published a Consultation Paper (CP07/5) proposing new 

funding arrangements for the FSCS. Finding a solution has been difficult; 

unsurprisingly, it has not been possible to devise funding arrangements which 

have universal support from the industry. However, there was general 

acceptance that the present arrangements were no longer fit for purpose. We 

believe that the model we have proposed is more rational, fairer to the 

various players in the market and more robust. It will also put the FSCS in a 

better position to provide an enhanced level of compensation for 

unforeseeable events. 

We do not expect our proposals to affect capital requirements or credit 

ratings for general insurers (or indeed for other firms). Although the 

proposals would raise potential exposure levels for general insurers (because 

of the revised sub-class thresholds and potential exposure to the defaults of 

other sectors), we do not consider there to be any change in the existing 

practice for the recording of such potential exposure, either under accounting 

practices or our own capital requirement regime. Unless a liability to the 

FSCS is at least ‘more likely than not’ and can be measured reliably, we 

would not expect it to appear as an accounting liability or affect a firm’s 

capital requirements under our rules. It would be reasonable to apply the 

same logic to credit ratings. 

We also announced our intention to consult separately on a final level of 

compensation funding to be made available based on wholesale business, 

which would involve firms which are not currently required to contribute to 

FSCS compensation payments. We explained our position on this issue to the 

Panel before publishing CP07/5. Wholesale and retail markets are not wholly 

insulated from each other. In our judgement it is reasonable to consider that 

a major default in the retail market could have a knock-on effect on the 

stability and profitability of the wholesale market. The retail and wholesale 

sectors often stand as counterparties to each other, interacting in mutually 

beneficial business relationships. Wholesale institutions therefore have a real 

interest in maintaining confidence and stability in the retail market. 

The proposed model also offers considerable benefits for some firms that 

have both wholesale and retail business. The focus of the proposed model on 

eligible income means that much of the business of such firms would be 

excluded from the relevant sub-classes, reducing their potential exposure at 

this level compared to the current model. 

We will take into account the issues raised by the Panel in developing our 

thinking on this further. We agree that there are practical issues relating to 

the design of any wholesale pool; for example in our current consultation we 

have sought stakeholder feedback on appropriate tariff measures for a 

wholesale pool. The fact that we have taken the decision to consult 

separately reflects the difficulty of this issue and the seriousness with which 

we are considering concerns that have been expressed.

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Retail strategy 

Our overall retail strategy is to help consumers achieve a fair deal. To fulfil 

this aim, we operate a risk-based approach and focus on achieving capable 

and confident consumers; clear, simple and understandable information for, 

and used by consumers; soundly-managed and well-capitalised firms who 

treat their customers fairly; and risk-based and principles-based regulation, 

through firm-specific and thematic supervision and policy. 

The retail market is characterised by many problems that make it difficult for 

us to meet our consumer protection, market confidence and consumer 

understanding objectives. Some of these relate to poor practices by firms 

across a wide range of sectors and types of business. These we aim to 

identify and address through our policy, firm-specific supervision and 

thematic reviews. Others relate to low levels of financial capability on the 

part of consumers. These factors underpin our particular focus on treating 

customers fairly and on financial capability. 

We recognise that there is more we need to do to improve our 

communication of what we are doing and why. We have been working with 

our stakeholders and building on the feedback we have received to make 

further progress in this area. 

Treating customers fairly (TCF) 

As the Panel acknowledges, we have published a range of materials, 

including case studies and examples of good and poor practice, to help firms 

understand what TCF means in practice. We also provide training for firms 

on TCF, and for small firms we have produced a simple self-assessment tool 

and published new TCF web pages. Firms’ progress on TCF has been mixed; 

over 90% of major retail firms, 87% of medium sized retail firms, 74% of 

wholesale firms (where TCF is relevant) and just over 40% of small firms 

sampled were implementing necessary changes in a substantial part of their 

business by 31 March 2007. To encourage small firms to engage with this 

initiative we are increasing the help available to them, including expanding 

the range of TCF online tools and beginning the roll out of regional 

workshops. 

We recognise that some in the industry are concerned about the costs 

associated with the need for firms to prove that they treat their customers 

fairly. However, we do not believe that evidencing TCF need be as onerous as 

some have suggested. In accordance with existing regulatory arrangements 

firms already collect large amounts of management information (MI) that 

can be used to measure performance against TCF outcomes. To further 

support firms in meeting the March 2008 deadline for MI, we will continue 

to work with the industry to help develop and share good practice. 

We have already promised the industry that where a firm can demonstrate 

good performance against the TCF outcomes through its MI it will be subject 

to less regulatory scrutiny. This will mean that such firms should incur lower 

costs in managing their dealings with us, benefiting from a ‘regulatory 

dividend’. 

To help us measure and report on our effectiveness in delivering regulatory 

outcomes we have developed an outcomes performance report (OPR), which 

we published in outline in April 2007. As part of this we will measure the 

extent to which financial services firms treat their customers fairly.


Appendix 2 

109 


Until the root causes of the problems in the retail distribution markets are 

resolved only limited progress can be made towards improved outcomes for 

consumers. The purpose of our retail distribution review is to deepen our 

understanding of the root causes of the problems in the retail investment 

market and then to help address them. We are working with industry-chaired 

groups and consumer representatives to find solutions that are attractive 

both to consumers and firms. There is an encouraging degree of consensus 

emerging on the possible future shape of retail distribution. 

Our Discussion Paper, to be published on 27 June, will set out the ideas that 

have been put to us and will seek feedback on how far these can address the 

problems that have been identified. We are giving a six-month period for 

discussion so that we can undertake further work to assess the costs and 

benefits of the options for change and the impact on different parts of the 

market. This will help us decide whether any regulatory change is needed to 

deliver the proposals and, if so, how to do this with appropriate periods of 

transition to limit any adverse effects on the proper working of the market. 

We are aware of the need to proceed cautiously and to consider carefully the 

impact of potential changes. However, it is clear to us that current 

arrangements are not sustainable, so we are determined to make progress. 

Thematic work 

Where similar issues arise in a number of different firms, we carry out 

thematic work – a co-ordinated programme of work involving a number of 

different firms to address an issue of potential or actual risk to our 

objectives. In planning our programme we consider the overall impact on the 

firms and markets we regulate. We have a range of regulatory tools that we 

can use to assess and monitor the risks; mystery shopping is just one of them. 

We also use, for example, desk-based reviews of firms’ product literature or 

visits to firms. 

There is no single prescribed sample size for a mystery shopping project; our 

aim is always to make the research ‘fit for purpose’. In being proportionate, 

we have to achieve the right balance between the cost to ourselves, the cost to 

the industry and the level of coverage required to generate useful conclusions. 

Qualitative samples are not (and are not meant to be) statistically 

representative of the population being researched. Instead, they are designed 

to reflect the target population by comprising a spread of the different types 

within the population. Quantitative research is used to measure what 

common behaviours or attitudes are, and so involves large samples that 

represent the target population. Because of the much larger samples required, 

quantitative research is more expensive and time consuming than qualitative 

research, and we would only use it if our research objectives dictated it. 

Our thematic plan for 2007/08 has fewer projects and is more clearly 

positioned so that it highlights the key issues we are focussing on. We have 

received positive feedback on this from industry and trade associations, who 

have told us that this gives them a clearer understanding of what our 

thematic priorities are and how we intend to address them. In the coming 

period, we intend to focus on a smaller number of larger themes. In response 

to requests from the Panel and other industry practitioners, we will say more 

about the risks we decide not to address in line with our risked-based 

approach. In all cases we will consider whether regulatory intervention is a 

‘must-do’ rather than a ‘nice-to-do’.

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At least seven days before publishing the results of thematic work we provide 

a summary of the findings, or other material, and an overview of the 

communications plan to the trade associations, consumer bodies and the 

Practitioner and Consumer Panels. In many cases we engage the Panels 

earlier than this. When we publish our findings we set out clearly which 

industry sectors are affected. We make firms that were visited in the course 

of thematic work aware of the results and, in almost all cases, we provide 

individual feedback to them. 

In addition to contact with individual firms we communicate the outcomes 

more widely through press releases, speeches and Dear CEO letters. We will 

continue to focus on indicating where the minimum threshold of compliance 

lies (for example by pointing out good and bad practice) and to make clear 

that going beyond the minimum standard is a matter of commercial 

judgement for firms’ senior management and is not a FSA requirement. 

All the material we publish is potentially relevant to an enforcement case. 

For example, it could be relevant to the question of reasonable predictability 

and it could inform the regulatory context at the time of the behaviour in 

question. Firms are not legally obliged to act on everything we say; only rules 

and Principles are binding. Where, however, firms reasonably rely on 

statements we have made in determining the approach they adopt, this will 

be a defence to any subsequent action we take. 

An expert group has been established to review continuing problems with the 

quality of advice, and this group includes representatives from the 

Practitioner and Smaller Businesses Panels. We welcome the Panel’s 

involvement in this work and acknowledge their concerns in this area. 

Through this work we intend to establish what proportion of the 

recommendations made to consumers are broadly suitable, or suitable for a 

defined range of consumer needs. We intend to design a research 

methodology that is credible and authoritative and results in a study which is 

replicable and can serve as a baseline to allow us to assess whether the 

quality of advice (in terms of outcomes rather than processes) is improving 

or deteriorating over time. If a suitable methodology can be identified and 

we agree to proceed with this work, we expect that it will provide valuable 

information on industry progress in providing suitable advice to consumers. 

The quality of advice work is being co-ordinated closely with the retail 

distribution review and mortgage effectiveness review. 


We welcome the Panel’s support for our commitment to increase spending on 

financial capability. We recognise that improving financial capability is a 

major challenge and one that will take a generation to take full effect. In this 

context we welcome the publication in January of the government’s longterm 

approach to financial capability, and the government’s independent 

feasibility study to deliver a national approach to generic financial advice, 

which complement our National Strategy. 

As the Panel observes, changes to the school curriculum are for the 

government and the Qualifications and Curriculum Authority (QCA). We 

have liaised closely with both the QCA and the DfES on this issue. In 

February 2007 the QCA published proposals for changes to the secondary


Appendix 2 

111 

school curriculum in England from September 2008. Under these proposals 

financial capability will have a much higher profile within the new ‘economic 

well-being’ programme of study. In addition QCA will give a clear signal to 

schools that personal finance is an important context for the teaching of 

mathematics. We broadly welcome the proposals. 

In our formal response we called for QCA to recommend to the DfES that 

economic well-being becomes a statutory programme of study. We consider 

that this is the best way to ensure that schools address financial capability 

and so contribute to meeting the government’s aspiration ‘that all young 

people have access to a planned and coherent programme of personal 

finance education, so that they leave school with the skills and confidence to 

manage their money’. We are also working closely with the relevant 

organisations in Scotland, Wales and Northern Ireland to make the most of 

opportunities to raise the profile and status of personal finance education 

offered by curriculum reviews currently being undertaken or implemented in 

these three countries. 

The Panel recommends that we produce a detailed prospectus in order to 

encourage a positive response from the regulated community. We have set 

extensive targets for our seven priority areas in Delivering Change, our 

published strategy document. We intend to re-run the baseline survey in 2010 

and take into account the results of that, together with the evaluation of our 

programmes, in deciding our strategy for 2011/12 and beyond. Until 2011, 

we have committed up to £90m expenditure on financial capability. 

We welcome the Treasury’s indication in their recent consultation paper on 

unclaimed and dormant assets that they intend to use some of these resources 

for financial capability work in England. We hope that the devolved 

administrations will follow suit. 


Many of our rules derive from EC legislation; we are required to implement 

directives on time and in full. We add additional requirements only where 

there is clear market failure and the proposal is justified by cost-benefit 

analysis. As with all proposed rules and guidance, we also have regard to 

the desirability of maintaining the competitive position of the UK financial 

markets. 

As a result of research forming part of the post- implementation review of 

the depolarisation regime, we have decided to convert the Menu and the 

Initial Disclosure Document (IDD) into non-binding Guidance for firms to 

help them comply with directive requirements. We have therefore withdrawn 

the IDD and the Menu from relevant notifications made to the EU 

Commission. This decision illustrates our commitment to removing 

requirements not justified by the benefits. 

More generally, we have been influential both in the EU and globally in 

promoting risk- and evidence-based approaches to regulation. Where we 

believe that EU measures in particular should be principles-based we will 

make that case vigorously to the Commission and to other Member States.

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Appendix 2 

We agree with the Panel that it is crucial to get involved at the earliest stages 

of EU policymaking. Consequently, we engage with Commission initiatives 

for new regulation at the earliest opportunity. The recent report of the 

National Audit Office (NAO) commended our activity in this area. It is also 

important for firms to engage in a co-ordinated and constructive way with 

the Commission, in particular through provision of market data to facilitate 

evidence-based policy making. 

We maintain close links with the Commission, which allow us both to 

understand and to influence their work programme. We have been successful 

in recent years in influencing their thinking, both in regard to individual 

measures, and their overall approach to regulation. 

We are very mindful of the impact of all regulation, including that 

originating in the EU on the competitive position of firms. We have an 

established policy of not introducing measures that are super-equivalent to 

EU requirements unless this can be rigorously justified on cost-benefit 

grounds. We have also been in the forefront of promoting a proportionate 

and risk-based approach to the supervision of EU and global groups that 

recognises the importance of collaboration and the judicious delegation of 

supervisory tasks in order to minimise the regulatory burden on firms. 

Passporting and home/host questions are of course not solely domestic issues 

and we have been working actively with the Commission and fellow 

members of CESR to find workable solutions. 

While promoting competitiveness of UK firms is not one of the FSA’s 

statutory objectives, when framing our regulation we are required to take 

this, together with the international nature of financial services, into account. 

We take this responsibility very seriously and if there is evidence that our 

regulation is a source of competitive disadvantage we will look closely to see 

whether there are adjustments that we can prudently make to offset this. We 

will not however take this to a point at which it would be harder for us to 

achieve our statutory objectives. 

Domestic regulatory agenda 

We agree that it is important for us to review and prioritise the discretionary 

new initiatives we undertake. We have a structured planning and budgeting 

process which takes into account our assessment of risks to our objectives. 

This allows us to judge what should be our main priorities for the coming 

year, which are set out in our annual Business Plan. 

The recent review of the FSA by the NAO recommended that we embed our 

OPR as fully as possible into our business management and planning 

processes. As our use of the OPR matures, we expect the output to add 

further robustness to our ability to make sound judgements on where we 

should be targeting our resources to achieve our longer-term priorities. This 

should enhance further our ability to explain to firms and others the 

programmes of work which we are planning. 

During the planning cycle each year we consult the Panel each year on our 

priorities. We find this dialogue helpful and will continue it in future years.


Appendix 2 

113 

Practitioner Panel survey of regulated firms 

We are always looking to improve our effectiveness and make the FSA easier 

to do business with. We continue to assess and, where necessary, revise our 

approach to make us more efficient and effective. For small firms in 

particular we have a tailored supervision and communications strategy. In 

our Business Plan for 2007/08 we set out changes we have already made to 

make it easier for small firms to do business with. Some of these changes will 

take time to bed in – for example the changes to our Firm Contact Centre 

and the RMAR – and others small firms will have already benefited from, 

such as targeted communications consolidated into one monthly update. 

We carried out independent research on many of our transactional regulatory 

processes. The results showed that on these transactions the majority of the 

sample of firms, which included small firms, found the FSA easy to do 

business with. The results of our own survey of the firms we relationshipmanage 

shows that we have made progress in giving consistent, clear and 

accurate guidance to our larger firms. This will be increasingly important in 

a more principles-based regime.

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Response to the Annual Report for 2006/07 of 

the Consumer Panel 

In its Annual Report for 2006/07, the Panel comments on a wide range of 

our policies, plans and activities. We welcome the Panel’s support for 

particular aspects of our work. In this response we focus on those areas on 

which the Panel expresses concerns or criticisms. 


We share the Panel’s desire to tackle the root causes of the problems in the 

market for the retail distribution of savings and investment products and to 

improve outcomes for consumers. The purpose of our retail distribution 

review is to deepen our understanding of these root causes and then to help 

address them. We are working with consumer representatives and groups of 

market participants to find solutions that are attractive to both. 

Our Discussion Paper, to be published on 27 June, will set out the ideas that 

have been put to us and will seek feedback on how far these can address the 

problems that have been identified. We are giving a six-month period for 

discussion so that we can undertake further work to assess the impact on 

consumers and firms of the possible package of changes. The purpose of the 

Discussion Paper is to open up the debate, so that we gather views from a 

number of perspectives on the possible consequences of the ideas we set out 

in the paper, and thereby further inform our analysis. We will particularly 

welcome detailed comments from the Consumer Panel. 

Whilst we would not want to pre-empt publication of our Discussion Paper 

by raising specific issues here, we expect the review to lead to changes in 

market practices for remunerating advisers, for instance by improving the 

clarity on the services to be provided and how much they will cost the 

consumer. Some changes in practice may need to be underpinned by changes 

in regulation, and we will need to reflect EU and UK legislative requirements 

in developing our proposals. Whilst we have not yet determined the detailed 

nature and extent of such regulatory change, we want to take a risk-based 

approach so that there are meaningful incentives for firms to adopt practices 

that deliver good consumer outcomes and meaningful disincentives for those 

that do not. But regulation is not the only trigger for firms to change; we 

recognise that many firms have already changed their remuneration practices 

and reduced the potential for poor advice for consumers. 


We set out targets we expected firms to reach by the end of March 2007. 

Progress towards these targets has been mixed, with over 90% of major 

retail firms, 87% of medium sized firms and 74% of wholesale firms meeting 

the deadline, compared to just over 40% of smaller firms from our sample. 

We have been encouraged by the commitment of management to get to grips 

with the TCF principle but we agree with the Panel that this commitment is 

yet to translate to widespread improvements in behaviour at the interface 

with customers.


Appendix 2 

115 

Last July in our publication Treating customers fairly – towards fair 

outcomes for consumers, we set out the six consumer outcomes which we 

expect TCF to deliver. This autumn we will publish our assessment of the 

progress against these outcomes. By focusing on consumer outcomes and the 

behaviour of firms towards their customers, consumers will be able to judge 

how the industry is performing against the regulatory obligation to treat 

customers fairly. 

The March implementation deadline created helpful momentum and we have 

set further deadlines in 2008. By the end of December 2008 we expect all 

firms to be able to demonstrate that they are consistently treating their 

customers fairly. This will require the use of TCF management information 

and we have indicated that we expect this to be in place by end of March 

2008. We will also be increasing the resources we devote to supporting and 

testing firms in meeting these deadlines. We expect to see TCF translate 

directly into improved outcomes for consumers over the coming months. 

Financial promotions 

We apply a risk-based approach to our supervision of financial promotions. 

This has included addressing lower risk breaches on a thematic basis across 

the investment, mortgage and insurance sectors. Our intervention in these 

areas has delivered significant improvements in the standard of promotions; 

for example in general insurance, the level of misleading savings claims in 

national press promotions is down from 45% (in January 2007) to 6% (in 

April 2007); and in mortgage broking, 90% of advertisements in the national 

press are compliant (November 2006). 

As the Panel is aware, while we are legally prevented from following a 

‘naming and shaming’ model we are examining whether there should be a 

greater role for firm-specific regulatory disclosure to achieve greater 

transparency of our expectations and to assist the industry to raise its 

standards further. 

Home reversions 

We published our final rules for the regulation of Home Reversions in 

October 2006. We worked closely with industry and consumer groups in 

designing the rules and preparing for implementation on 6 April 2007. We 

were encouraged by the Panel to prohibit non-advised sales of home 

reversion products and we gave this issue careful thought. However we 

concluded that it would be difficult to justify such a step in the absence of 

any evidence of significant consumer detriment arising from home reversion 

sales. We believe that the number of non-advised sales is small: most firms 

selling home reversions are members of the trade body SHIP and continue to 

be subject to the requirement not to accept non-advised business. Moreover, 

banning non-advised sales would create an unlevel playing field with lifetime 

mortgages, where non-advised sales are permitted, and would restricted 

consumer choice. Instead, we introduced a range of measures designed to 

protect consumers from the risk of buying unsuitable products in a nonadvised 

sales context. We have also said that we will undertake a piece of 

thematic work to assess the quality of home reversion selling standards and 

we will keep this subject under review.

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Appendix 2 

The valuation of the property is a key part of the home reversion transaction 

and we have introduced a number of measures to ensure that valuations are 

independent and fair to both parties. The Panel supported our original 

proposal to make the valuer the agent of the consumer. However, firms made 

it clear that they would commission their own valuation rather than rely on 

a report commissioned by the consumer and we concluded that this proposal 

could, in practice, result in delay and additional cost for consumers. So 

instead of requiring that the valuer be the agent of the consumer, our rules 

require firms to ensure that the valuation is carried out by a competent 

valuer who owes a duty of care to the consumer in respect of the valuation 

and provides the consumer with access to an independent complaints 

procedure capable of providing a remedy binding on the valuer. 

Home purchase plans 

Home purchase plans do not involve the provision of credit and so we do 

not consider it appropriate to require firms to quote an APR. Instead, firms 

have the option of including an APR equivalent. There is however a 

requirement on firms to quote two other important cost comparitors in the 

financial information provided to consumers: the total amount to be paid by 

the consumer under the plan; and the pound payable per pound provided 

under the plan. These comparitors are also required under the mortgage 

regime and the information is required to be set out in a similar prescribed 

manner, enabling a consumer not only to make meaningful comparisons 

between home purchase plans but also between home purchase plans and 

mortgages. 

Closed with-profit funds 

We acknowledge the Panel’s concerns over the information provided to withprofit 

policyholders after the point of sale. In our Business Plan 2007/08 we 

said we would do further work so that with-profit policyholders, in both 

open and closed funds, receive clear and accessible information to help them 

make informed decisions about whether to keep or surrender their policy. In 

May this year we issued the findings from our review; we concluded that 

some communications to policyholders do not meet Principle 6 (treating 

customers fairly) or Principle 7 (paying due regard to the information needs 

of customers). More generally (and not closed fund specific), there is an issue 

with firms maintaining controls so that products are managed consistently 

with contractual obligations (highlighted in a Dear CEO letter in 2004 and 

repeated in the Life Sector Newsletter April 2007). Supervisors will be 

challenging senior management of life insurers on the actions they are taking 

in response to these issues. 

In our May Insurance Sector Briefing we stated that insurers’ responsibility 

to provide communications that are clear, fair and not misleading extends to 

being proactive in some key respects. Specifically we put forward the view 

that insurers should consider informing customers about contractual 

breakpoints (which the customer cannot reasonably be expected to recall or 

know about already) that may have a material impact, such as Market Value 

Reduction (MVR) free-dates.


Appendix 2 

117 

Our research into the availability of ongoing advice showed that there is 

some reluctance on the part of advisers to engage with with-profits 

policyholders. The research highlighted several observations on the role of 

the FSA – 61% thought FSA should be the body primarily responsible for 

giving advisers guidance on how to advise clients about their with-profits 

product, but 63% said there was nothing else we should do beyond what we 

already do. Only 6% thought the guidelines were unclear and only 9% 

thought clearer/better guidance from FSA would help matters. 

There are a number of statutory safeguards for policyholders at the time of 

mergers, sales and consolidations surrounding changes in control and Part 

VII transfers. In the case of the latter, these safeguards include the 

appointment of an independent expert, the right of policyholders to be heard 

in Court, and the FSA’s opportunity to comment on all policyholder 

communications before they are issued. We are pleased that the Panel 

considers our approach to be logical. We give careful consideration to the 

likely effects on policyholder interests and do object to proposals which 

appear to be detrimental to their interests or to have a material adverse effect 

on a particular group of policyholders. 

State second pension 

In May 2007 we concluded our thematic work reviewing past selling 

standards in relation to Appropriate Personal Pensions (APP) sold since 

1988. We concluded that there is no evidence of widespread mis-selling based 

on the regulatory standards that existed at the time. 

However, a small proportion of sales made (1.5% of policies) involved 

consumers who were above the age standards set by individual firms at the 

time and these consumers may be at particular risk of having been given 

inappropriate advice. We carefully considered what form of regulatory 

intervention would be the most effective and proportionate, particularly as 

there are reasons why consumers may still have bought an APP 

notwithstanding their age at the time. In reaching this decision, we took 

account of a number of factors which we have previously published, 

including the scale of the problem, the average loss per consumer and the 

administrative costs involved in getting any due redress to consumers. We 

decided that the most proportionate response was to: 

• publish a step-by-step guide for consumers explaining the issue, how to 

find out whether they are affected and, if so, how to complain: 

http://www.moneymadeclear.fsa.gov.uk/pdfs/s2p_wrongly_advised.pdf ; 

and 

• continue to monitor the number of complaints received by the FOS in 

this area in case these indicate issues with the past sales of particular 

firms or the way in which firms are handling complaints. Where issues 

are identified firms will be responsible for dealing with those issues as 

part of their ongoing obligations to treat their customers fairly. 

In May 2007 we also updated our factsheet which helps consumers with 

their annual decision about whether to contract out of the additional state 

pension. It is available at: 

http://www.moneymadeclear.fsa.gov.uk/pdfs/contracting_out.pdf

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Appendix 2 

Payment protection insurance 

We share the Panel’s concerns about this market and we are currently 

undertaking one of our biggest exercises ever in the retail market to help to 

mitigate the risks to consumers. In January 2007 we announced a third 

extensive review of PPI sales involving over 150 new and follow-up visits to 

firms and mystery shopping. Through this work we are committed to 

ensuring that firm selling practices are improved and that those firms that 

fall short of expected standards are identified and action is taken. 

As part of this phase, we also plan to collect certain key data on a monthly 

basis from some of the larger firms operating in this market. We believe this 

data will help us to ascertain the state of the market and monitor on-going 

changes and, more importantly, enable us to assess a firm against its peers. 

At the same time, the Office of Fair Trading has referred the UK PPI market 

to the Competition Commission (CC) for further investigation. The CC will 

investigate aspects of the PPI market over which the FSA has no power, 

including whether any feature, or combination of features, of the PPI market 

or markets prevents, restricts or distorts competition. We are working closely 

with the CC. 

To date, we have taken enforcement action against nine firms for breaches in 

relation to PPI sales. These firms have been fined a total £1.6m but the overall 

costs of remedial programmes and compensation are significantly higher. 

Firms are contacting over 1.3m consumers and where appropriate will offer 

them compensation. We have publicised the findings of our enforcement 

investigations to raise awareness in the market of the standards we expect. 


We welcome the Panel’s support for the National Strategy for Financial 

Capability. We recently met with the Panel to discuss their concern about the 

elderly being excluded from the Strategy. We found the meeting very useful 

and welcomed the opportunity to discuss the issues facing older consumers 

and how we can reach them. We hope the meeting provided the Panel with a 

clear picture of the wide range of work the FSA is already undertaking 

concerning older people, which includes: 

• assessing whether the industry is meeting the financial needs of older 

consumers; 

• increasing the reach of our consumer information aimed at older people 

as well as, in the autumn, raising awareness of the decisions consumers 

need to take at retirement; and 

• using our Innovation Fund to prioritise and provide financial assistance 

to a number of projects run by intermediaries aimed wholly, or in part, at 

improving the financial capability of older people at a regional and 

national level. 

More principles-based regulation 

As part of our move to more principles-based regulation we are committed 

to simplifying and shortening our Handbook. We are focusing particularly 

on those areas of the Handbook where the benefits of removing detailed 

rules seem to be greatest, and where other changes, such as the need to


Appendix 2 

119 

implement EU directives, offer us an opportunity to introduce changes with 

the least additional disruption and cost. In changing these parts of the 

Handbook we have aimed, where possible, to move away from detailed, 

process-orientated rules and have relied more on high-level, outcome-focused 

principles and rules. As with all changes we make to our Handbook, we will 

consult on proposals before making any changes and all proposed changes 

will be subject to rigorous cost-benefit analysis. We expect principles-based 

regulation to achieve benefits for consumers by encouraging the senior 

management of firms to focus on the Principles and by fostering a more 

innovative and competitive financial services industry. 

Industry guidance 

To help firms determine how best to meet our expectations under more 

principles-based regulation we see a greater role for sector-specific guidance 

and support provided by industry associations, professional bodies or groups 

of firms. We will respond more fully to the feedback we received on our 

Discussion Paper in the third quarter of 2007, but where guidance has an 

impact on consumers an important factor in deciding whether we confirm 

the guidance will be how industry bodies have sought and considered the 

views of consumer representatives in the development of their guidance. 

Conduct of business simplification 

We are making a series of changes to simplify our conduct of business regime 

for investment business and, at the same time, to implement the Markets in 

Financial Instruments Directive. Our new rules will be consistent with our 

move towards a more principles-based approach to regulation. Rather than 

reducing the level of protection for consumers this approach should lead to a 

greater alignment of business and regulatory objectives, which in turn should 

benefit consumers by creating a more competitive and innovative market 

place. We will carry out a post-implementation review of the new Conduct of 

Business sourcebook to assess whether the desired outcomes for both 

consumers and firms are being achieved in practice. 

Most respondents to the consultation agreed with our proposal to remove 

the excessive charges rule, which we have never used or taken enforcement 

action under. Firms should, however, have regard to the new requirement to 

act honestly, fairly and professionally in accordance with the client’s best 

interests. 

It was not our intention to make any policy changes in the conduct of 

business rules applying to with-profits, simply to improve their wording and 

move to higher-level rules in some areas where this would not affect, or 

would improve, outcomes for consumers. We have sought to make this 

clearer in the rules we have now made. 

Costs and benefits of regulation 

Deloitte published their report on the costs of regulation in June 2006. Most of 

the rules identified as imposing the highest incremental costs were in the retail 

investment and pensions advice sector and related to point-of-sale disclosure. 

We are using the results of the Deloitte study to assess the benefits of some of 

the regulatory requirements that generate the highest incremental costs. The 

benefits of regulation flow from improvements in market outcomes that would

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Appendix 2 

not have taken place in the absence of regulation. Measuring such effects 

directly is difficult in practice, so we worked with economic consultants, 

Oxera, to develop a framework for assessing them. We then followed up by 

commissioning research reports into three rules: the Menu, the suitability letter, 

and reduction in yield (RIY) effect of charges. The report on the Menu was 

published in May and contributed to our decision to remake those rules as 

Guidance. The reports on suitability letters and RIY will be published shortly. 

Training and competence 

In February 2007 we published proposals for a new Training and 

Competence Sourcebook. It gives retail businesses greater flexibility to decide 

how to achieve the required competence standards. We are proposing to 

retain the sourcebook at this stage, but our longer-term aim is to remove it 

altogether and rely on high-level competence requirements. This will not 

happen until we are satisfied it can be done without reducing competence 

standards in the industry. 

Approved persons 

CP06/15, which we published in August 2006, makes it clear that our 

approval process is in addition to, not a substitute for appropriate checks by 

employers. Our expectation is that senior managers assess, using a risk-based 

approach, which combination of checks including credit references, 

references from previous employers and criminal records checks are 

appropriate for a particular role. 

Following the publication of CP06/15, the Approved Persons Regime 

(Simplification and MiFID) Instrument 2007 (Ref 2007/06) further amends 

SUP 10 to include specifically that: ‘in deciding if it is necessary to carry out 

a check of criminal records, the firm should consider that the FSA does not 

routinely carry out these checks during the approval process.’ (Annex 1 – 

Frequently Asked Questions G – 11A) 

Following a commitment made in CP06/15 we are also carrying out criminal 

records checks on a sample basis for applicants for approved persons status. 

FSA’s use of complaints data 

We are aware of the Panel’s interest in the publication of complaints data. 

We will consider whether it would be desirable to publish complaints data, 

including the associated costs and benefits, in the second part of this year. 

General insurance effectiveness review 

We welcome the Panel’s support of our review of the effectiveness of our 

general insurance regime. Following talks with the Panel and other interested 

parties we have decided not to remove cancellation rights for non-distance 

sales to retail customers. We believe there would be no compliance cost 

savings and a risk that pressure-selling models would emerge. 

We acknowledge the Panel’s concern over our proposals to remove detailed 

rules on product disclosure. Our research and market failure analysis found 

that consumers purchasing most types of general insurance products made 

limited use of documents given to them by firms. Instead, they focus on 

price. We propose to replace the detailed rules on product disclosure with a


Appendix 2 

121 

high-level standard which will apply to all firms, all products and all 

customers (including commercial customers). It will require firms to ensure 

customers are given appropriate information in good time and in a 

comprehensible form so that they can make an informed decision about the 

arrangements proposed. 

The degree of standardisation of cover and terms for Private Medical 

Insurance (PMI) products reduces the risk of a consumer choosing a PMI 

contract that is less suitable than another available PMI contract. Our 

research shows that consumers engage in the purchase of this product and 

consider their choices carefully, and there is an Association of British Insurers 

(ABI) Statement of Best Practice for firms selling this product which goes 

beyond the requirements of our rules. This led us to conclude in our March 

2007 interim report that this product should not be grouped with protection 

products and so might be suitable for deregulation. However, following 

feedback from the Panel and other interested parties, we will explore this 

issue again in our June Consultation Paper. 

Financial Ombudsman Service 

We published a joint FSA/FOS discussion paper on the future funding 

structure of the FOS in May 2006. The responses indicated there is broad 

support for increasing the importance of the case fee, as opposed to the levy, 

in financing the FOS, and for increasing the number of ‘free’ cases. We will 

consider what scope exists for moving in this direction when agreeing the 

ombudsman service’s budget this year. We will take care when considering 

any changes to ensure they are fair to firms of different sizes and types. 

Relations with the OFT 

Over the last 12 months there has been a significant improvement in the way 

we work with the OFT at a strategic level and we have made a commitment 

to continue this collaboration to the benefit of consumers and markets. The 

National Audit Office (NAO) review of the FSA concluded that ‘The FSA has 

good and improving working arrangements with the Office of Fair Trading’ 

and said that the collaboration on payment protection insurance was ‘a model 

for future successful joint working between the two organisations.’ 

Our joint work includes: 

• Working with the OFT on the issue of unauthorised overdraft charges, 

leading on the question of banks’ handling of complaints in this area. 

• Setting up a joint FSA/OFT working group to consider our respective 

regimes for financial advertising. The group’s aim is to make it easier for 

firms to focus on producing clear, fair and not misleading information for 

consumers rather than on technical compliance with two sets of rules. 

• As part of our retail distribution review working with the OFT on the 

competition aspects of commission and the way in which advisers are 

remunerated. 

• Collaborating with the OFT when drafting our recommendations to the 

Independent Reviewer of the Banking Code. 

• Seconding an experienced FSA supervisor to the OFT to help with the 

implementation of the Consumer Credit Act 2006, under which the OFT 

will assume new obligations to consider, among other things, responsible 

lending in respect of unsecured credit.

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Appendix 2 

On the specific operational issues highlighted by the Panel, the work on 

gateways is in progress. On public registers we committed to doing a 

feasibility study to be completed by the end of March 2007; we will report 

our findings in our next update in June. On contact centres we concluded 

that: ‘while we are keen to explore this further...there are some uncertainties 

which must be addressed before any migration can be successful’ and 

committed us to doing so. 

We are also drafting a high-level statement that will set out the respective 

roles and responsibilities of the FSA and the OFT. We aim to publish this 

alongside the next Joint Action Plan update in June. 

Banking code 

The Banking Code (‘the code’) is the industry’s own code of conduct in the 

area of deposit-taking. Compliance with the code is monitored by the 

Banking Code Standards Board. The code is in the middle of its tri-ennial 

review. The independent reviewer has submitted his proposals to the code 

sponsors and what we have seen in draft suggests that the code will be 

significantly strengthened, not least through the inclusion of an over-arching 

fairness provision. This, if monitored and enforced effectively, should go a 

long way to meeting the Panel’s concerns regarding the ‘unlevel playing field’ 

between banking and other regulated market sectors. 

In response to the Panel’s comments on the governance of the code, we are 

consulted by the code sponsors prior to the appointment of the independent 

reviewer. We expect the OFT would also have an interest in this appointment 

given the code’s coverage of consumer credit products. 

Regulation of small firms 

Our risk-based approach enables us to supervise a large number of small 

firms effectively and assists us in taking appropriate action against firms who 

pose a significant risk to consumers. Our focus is on changing firms’ 

behaviour to benefit consumers. We are always looking to improve our 

effectiveness and we will continue to assess and, where necessary, revise our 

approach to make us more efficient and effective. 

Enforcement 

We recognise the importance of enforcement in moving towards more 

principles-based regulation and it continues to be an important tool in 

supporting our supervisory, thematic and market-monitoring activities. 

We use enforcement to bring about behavioural change in firms in those 

areas where the risks to our statutory objectives are highest, and particularly 

where the protection of consumers or the cleanliness of markets is an issue. 

We note that publishing an enforcement action, along with appropriate 

supervisory follow up, has often led firms to consider whether the 

enforcement action has implications for their business and whether they are 

treating their customers fairly. This is an important tool for us in informing 

the industry of the types of behaviour we consider unacceptable. 

Our intention is that good behaviour, which is outcome focussed, considers 

the true regulatory risks, and complies with our Principles, will result in a 

real regulatory dividend. We will take strong enforcement action to reinforce 

our message when behaviour and outcomes fall short of the Principles.


Appendix 2 

123 

In some (limited) circumstances where we have concerns about the behaviour 

of a firm or approved person we may decide that it is not appropriate to 

bring formal disciplinary action. Instead, we may consider it helpful to make 

a firm or person aware that they came close to being subject to formal 

disciplinary action. We use private warnings to deliver this message, and in 

2006/07 we issued 25 of them. 

We have achieved successful enforcement outcomes in the wholesale and 

retail markets for breaches of our high-level principles without reference to 

detailed rules. We expect this trend to continue. We took action against 20 

individuals last year across a range of issues, with consequences including 

financial penalties, public censures and prohibition from the industry. Some 

of the actions against individuals were on the basis of Principles only. We are 

serious in our aim to engage senior management in respect of the regulatory 

conduct of their firms: we expect senior management to take responsibility 

for ensuring that risks are identified; that there are appropriate systems and 

controls in place to mitigate these risks; and that steps have been taken to 

ensure that they are effective. We will consider taking action against 

individuals if we consider that they have failed in their responsibilities. 

In our recent consultation on the review of the Enforcement and Decision 

Making Manuals, we have proposed that when determining the amount of a 

penalty to be imposed on an individual we will take into account that 

individuals will not always have comparable resources to a firm, that 

enforcement action may have a greater impact on an individual, and also, 

that it may be possible to achieve effective deterrence by imposing a smaller 

penalty on an individual than on a firm. We have also proposed that when 

setting the level of penalty in cases involving individuals with significant 

financial resources, it will be appropriate to consider whether the level of 

financial penalty should be higher than might otherwise be imposed on an 

individual, to ensure that the penalty has a deterrent effect. We propose to 

also consider whether the status, position or responsibilities of the individual 

are such as to make a breach more serious and whether the penalty should 

therefore be set at a higher level. 

We have had considerable success over recent months in tackling those firms 

and individuals in the UK that facilitate the actions of overseas boiler rooms. 

We believe that these cases have an overall deterrent effect on boiler room 

activity. For example we obtained a winding up order against Inertia 

Partnership and an interim injunction against Chesteroak; both firms were 

UK links to boiler room activity and the orders were obtained to protect UK 

consumers. Our enforcement options in respect of overseas boiler rooms 

without any UK link are far more limited because of jurisdictional 

difficulties. One of the most effective methods we have to deal with the 

dangers posed by overseas boiler rooms is to raise awareness through 

consumer education and to issue warnings and alerts in relation to specific 

boiler room threats. We have also taken action against a firm of solicitors 

based in the UK for assisting overseas boiler room based activity. The firm 

has referred our decision to impose a penalty on it to the Financial Services 

and Markets Tribunal and the case is being heard in June. 

Response to the Annual Report for 2006/07 

of the Smaller Businesses Practitioner Panel 

(to follow)

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Appendix 3 

Appendix 3: 

Complaints against the FSA 2006/07 

The Financial Services and Markets Act 2000 (FSMA) requires us to have 

arrangements for investigating complaints made against us. This report 

covers the operation of our complaints scheme (‘the scheme’) in 2006/07. 

How the scheme operates 

Details on the operation of the scheme are set out in our Handbook, 

Complaints Against the FSA: 

http://fsahandbook.info/FSA/html/handbook/COAF 

The scheme operates in two stages. First, complaints that fall within the 

scope of the scheme may be investigated by the FSA – ‘stage one’. Then, if 

the complainant remains dissatisfied, the matter can be referred to the 

independent Complaints Commissioner (‘the Commissioner’), Sir Anthony 

Holland – ‘stage two’. The Commissioner has published a separate report 

on his work, to which we respond in Appendix 4 of this Annual Report. 

Within stage one, complaints will be considered under: 

(a) the fast track scheme, which deals with complaints against the actions 

or inactions of the FSA under FSMA that are assessed as ‘low impact’ 

and can be answered within 5 working days from receipt by the local 

area involved in the complaint; or 

(b) the main scheme, which deals with complaints against the actions or 

inactions of the FSA under FSMA; or 

(c) the transitional scheme, which deals with complaints against the actions 

or inactions of predecessor bodies under previous legislation. 

At the earliest opportunity we send all complainants a leaflet about the 

operation of the scheme, which explains their rights under the scheme. 

Information on the scheme and a link to the complaint leaflet can be found 

on our website: http://www.fsa.gov.uk/Pages/About/complaints/index.shtml 

We aim to investigate complaints against us as quickly as possible and 

we have service standards in place for handling these complaints. 

Our performance record is published on our website at: 

www.fsa.gov.uk/Pages/Library/Cooperate/Performance/standards/index.shtml


Appendix 3 

125 

All stage one investigations are conducted by a member of staff not involved 

in the matter complained of. If a complaint investigation identifies an error 

or shortfall in our procedures or processes we take appropriate action; this 

may involve changing a procedure or reviewing the way we work. The main 

scheme allows us to offer an ex-gratia payment if appropriate. 

The Commissioner’s reports on individual cases which he has investigated 

under stage two of the scheme are normally published on his website 

www.fscc.gov.uk/, and our responses to these reports are published on our 

website at: 

www.fsa.gov.uk/pages/library/other_publications/complaints/index.shtml 

What the scheme does not cover 

The scheme does not allow us to investigate complaints about certain issues, 

including: 

(a) the performance of our legislative functions under FSMA or previous 

legislation; 

(b) the actions, or inactions, of the Financial Ombudsman Service (FOS) or 

the Financial Services Compensation Scheme (FSCS); and 

(c) the FSA’s relationship with its employees. 

We may defer the investigation of complaints where the matter is the subject 

of ongoing action by the FSA or another agency, or we can refer the 

complaint if it would be more appropriately dealt with in another way. We 

can also decline to investigate a complaint if we believe that the matter 

amounts to no more than dissatisfaction with our general policies or our 

exercise of discretion, where no misconduct is alleged. 

Main events during the period 

We concluded 241 complaints, comprising 378 allegations. The number of 

complaint allegations from consumers (197) outnumbered those from 

authorised firms (139). We received 42 allegations from other sources, such 

as trade bodies, solicitors, and unauthorised firms. 

The majority of complaint allegations from authorised firms were from 

general insurance intermediaries and small IFAs. A significant number of 

complaints from firms were about mandatory electronic reporting, 

particularly the administrative fee charged for late submission of returns, 

and fee collection. Fee collection complaints have typically been about fees 

levied on firms that either cancel authorisation after the 31 March 

cancellation deadline or do not alert us to changes in their number of 

approved persons before the 31 December deadline. The onus is on firms to 

comply with our Rules, which clearly set out deadlines by which firms 

should inform us of their intentions; consequently these complaints cannot 

be upheld except in extreme circumstances. Other recurring complaints were 

about poor customer service, our supervision of firms, the authorisation and 

cancellation processes, and our enforcement process.

126 


Appendix 3 

Approximately 18% of complaint allegations received and processed last 

year were not within the scope of the scheme as they related either to our 

legislative functions (the making of Rules and issuing of guidance) or to the 

actions of the FOS and/or the FSCS. We help these complainants by 

providing them with relevant background information but are also making 

it more explicit, through our publications and our website, that this type of 

complaint is not for our scheme. The high level of complaints which do not 

fall within the scope of our scheme has had an effect on the ‘complaint 

uphold’ rate (see table 2, below), which fell significantly towards the end of 

the year. We will be monitoring this situation closely. 

We also made some changes to our complaints process this year, removing 

the age restriction on the Commissioner (following the implementation of 

the age discrimination provisions of the European Employment Directive), 

and making more explicit the current operational practices of the 

Complaints Scheme and Commissioner. 

Summary of complaints considered in the period 

Table 1 

Complaints investigated 

by FSA (stage one) 

2006/07 2005/06 

In progress at start of period 61 46 

Received during period 217 267 

In progress at end of period 37 61 

Total complaints resolved during period 241 252 

Table 1 shows that 241 complaints were resolved by the FSA at stage one. 

A breakdown of this figure can be seen in Table 2. 

We also received 837 enquiries in 2006/07 which did not fall within the 

scheme (a decrease from 1,297 in 2005/06). These enquiries typically come 

in the form of correspondence from consumers who should have addressed 

their complaint to either the FSA’s Consumer Contact Centre, other parts of 

the FSA, the FOS, or the FSCS. These enquiries were redirected as 

appropriate.


Appendix 3 

127 

Table 2 

Number of stage one complaints investigated 241 

Total number of allegations investigated 378 

Allegations withdrawn 31 

Allegations not investigated (i.e. deferred or referred elsewhere) 13 

Allegations excluded from the scheme 67 

Allegations upheld 31 

Allegations not upheld 236 

Lessons learned 

The Complaints Scheme is one of our key accountability mechanisms 

established under FSMA, and helps us to identify processes which are not 

working effectively. Complaints that are upheld usually result in 

recommendations being made, which in turn leads us to amend or update 

our processes with the ultimate aim of making the FSA easier to do business 

with. 

We made the following changes as a result of stage one complaint 

investigations: including details of firms’ fees liabilities should they cancel 

their authorisation in our new authorisation welcome pack; changing 

consumer factsheets; granting refunds following investigations into 

exceptional circumstances surrounding late returns; and reminding staff 

about the importance of prompt records management in ensuring that 

accurate records of contact with firms are maintained. 

Ex-gratia awards made as a result of complaint investigations 

This year we made eight ex-gratia awards following stage one 

investigations, totalling £5,882.63. One award of £250 was rejected by the 

complainant. 

Service standards for handling complaints against the FSA 

The volume of complaints received has decreased during the year by around 

19% over figures for 2005/06, while the volume of enquiries received 

during the year has decreased by around 32% for the same period. We 

believe this reduction in complaints is a direct result of improvements made 

to our customer service and higher compliance with agreed service level 

standards. We have also seen a significant decrease in the number of 

complaints from mortgage and general insurance firms compared with 

2005/06, which was the first year that many of these firms had been 

regulated by us. 

Our compliance with complaints handling service standards has improved 

from an average of 97% (in 2005/06) to 99%.

128 


Appendix 4 

Appendix 4: 

The FSA’s response to the Complaints Commissioner’s 

Annual Report for 2006/07 

The Commissioner’s Annual Report for 2006/07 

We welcome the report of the Complaints Commissioner (‘the 

Commissioner’). This is the third Annual Report produced by Sir Anthony 

Holland, who was appointed as Commissioner on 3 September 2004. 

In his Annual Report, the Commissioner provides a summary of the diverse 

themes in the complaints he dealt with. 

In all of his 26 stage two investigations the Commissioner reached the same 

conclusion as we had in our stage one investigation. However, in some 

cases, whilst agreeing with our decision, the Commissioner identified areas 

where we could improve our complaints handling, and we will work on 

these areas over the coming period. 

Points of interest 

Firms’ compliance with FSA rules and guidance 

The Commissioner helpfully makes it clear in his Annual Report that he 

believes the onus is on firms to know and abide by the FSA rules and 

guidance applicable to them in their particular circumstances. He states that 

he is unlikely to look favourably on complaints from firms that have broken 

FSA rules and not interacted with the FSA as the rules require. 

Complaints requesting the Commissioner to intervene in FSA 

enforcement action 

The Commissioner has clarified his position in relation to complaints asking 

him to intervene in ongoing enforcement action, stating that he is likely to 

do this only in exceptional circumstances. 

Statistics and subject matter of complaints 

The Commissioner concluded 26 stage two investigations during the period, 

and has eight investigations open at the end of the period. 

The Commissioner published 18 of his stage two reports on his website at 

www.fscc.gov.uk/. We published our responses to these reports on our 

website at 

www.fsa.gov.uk/Pages/Library/Other_publications/Complaints/index.shtml 

(copies also available from the FSA Company Secretariat on 020 7066 9870). 

In the remaining eight cases the Commissioner did not publish his findings at 

the request of the complainants and we did not publish our responses.


Appendix 5 

129 

Appendix 5: 

Enforcement Activity 2006/07 

We set out below statistical information in relation to cases investigated by Enforcement and the outcomes of those 

investigations. This should be read in conjunction with the Enforcement Annual Performance Account, which sets out 

our approach to Enforcement and provides a qualitative assessment of the fairness and effectiveness of Enforcement. 

Issue Open at Opened Closed Open at 

1/4/06 during year during year 31/3/07 

Selling 14 21 13 22 

Pensions and endowments 1 0 1 0 

Investment management 1 1 1 1 

Unauthorised activities 17 10 11 16 

Systems & controls 21 28 22 27 

Market protection 30 22 25 27 

Listing Rules 3 1 3 1 

Fitness & propriety issues 30 18 23 25 

Non-cooperation with FSA 0 1 0 1 

Money laundering controls and financial fraud 7 9 4 12 

Totals (excluding TCT) 124 111 103 132 

Threshold Conditions Team (TCT) 1 55 156 116 95 

RMAR Project 2 108 1,491 1,545 54 

Note 1: These are cases against regulated firms that failed to meet FSA minimum standards (‘Threshold Conditions’). 

Note 2: The RMAR (Retail Mediation Activities Return) enforcement project began in October 2005. It is a project focused on ensuring that firms 

comply with our requirement to submit electronic returns. 

Cases may include both firms and individuals. 

In addition there were 549 incoming international requests received by the Law, Policy and International Co-operation (LPIC) 

area of the Enforcement Division during 2006/07.

130 


Appendix 5 

Number and total amount of financial penalties 

£m 

25 

20 

15 

10 

31 

Financial 

Penalties* 

17 

Financial 

Penalties** 

32 

Financial 

Penalties 

5 

0 

2004/05 2005/06 2006/07 

*Includes £17m Shell financial penalty 

**Includes £13.96m Citigroup financial penalty 

Financial penalties split by issue 

£,000 

100,000 

10,000 

1,000 

525 

595 

17,994* 

2,115 

1,000 

505 

13,996** 

1,325 

1,285 

8,286 

1,046 

5,007 

100 

53 

240 

80 

250 

10 

20 

20 

0 

2004/05 

2005/06 


Money laundering controls and financial fraud 

Listing Rule breaches 

Market protection 

Pensions and endowments 

Fitness and propriety issues/ 

Threshold Conditions 

Selling 

Systems & controls 

*Includes £17m Shell financial penalty 

**Includes £13.96m Citigroup financial penalty


Appendix 5 

131 

Use of powers 

3 

9 

5 

7 

2 1 

4 1 

10 

3 

26 

44 

18 

45 

28 

65 

3 

1 

2004/05 

2005/06 


Variation/Cancellation 

Refusal of Authorisation/ 

Approval/Permissions 

Criminal 

outcome 

Financial 

penalty 

Civil outcome 

(Injunction/ 

Restitution) 

Prohibition 

Public censure 

only 

Prohibition 

revoked 

Note: For 2006-07 

219 cases closed during the year 

Of these: 

110 cases concluded with the use of powers. 

(Cases may have utilised more than one power.) 

109 cases concluded without the use of powers. 

(Of these: 10 cases resulted in a Private Warning only.) 

RMAR cases are excluded; 98 firms had their permissions cancelled as part of 

the RMAR project in 2006/07. 

Note: 

The above chart is based on the closing date of cases, whereas the previous financial 

penalty charts are based on the date the final notice was issued. Cases that conclude 

with multiple financial penalties (e.g. to firm and individual/s) would only be 

represented on this chart once.

132 


Appendix 5 


Appendix 5 

133 

The table below shows cases that had a Final Notice issued in 2006/07 

Publicised cases 

Name on Final Notice Issue Date case Date Action Outcome Financial 

opened Final Notice against firm/ penalty 

issued individual? £ 

Mark Postle-Hacon trading as PHC Management Limited Fitness & Propriety Issues/Threshold Conditions 24/10/2006 22/03/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Roberto Chiarion Casoni Market Protection 24/04/2006 20/03/2007 INDIVIDUAL Financial Penalty 52,500 

Romaine Noir Limited Fitness & Propriety Issues/Threshold Conditions 05/09/2006 15/03/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Marten Terrence Cox Waugh trading as Marten Waugh Company Fitness & Propriety Issues/Threshold Conditions – RMAR 14/09/2006 12/03/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

V. G. Mortgage Services Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/10/2006 09/03/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Herbie Smyton trading as Newline Financial Services Fitness & Propriety Issues/Threshold Conditions 26/10/2006 28/02/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

William Rose trading as Rose and Partners Fitness & Propriety Issues/Threshold Conditions 10/10/2005 28/02/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Cathedral Motor Company Limited (trading as Arbury) Systems & Controls 27/09/2006 26/02/2007 FIRM Public Censure 

Regency Investment Services Ltd Selling 15/03/2006 22/02/2007 FIRM Financial Penalty 14,000 

Russell George Howe trading as Howe Car Sales Fitness & Propriety Issues/Threshold Conditions 13/10/2006 22/02/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Glenis Wild trading as Trafalgar Finance Fitness & Propriety Issues/Threshold Conditions – RMAR 14/09/2006 21/02/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Mns Services Fitness & Propriety Issues/Threshold Conditions – RMAR 14/09/2006 21/02/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Temple Property Consultants Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 14/09/2006 21/02/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Peter Lindsay Freeman Hendry trading as The Financial Practice Fitness & Propriety Issues/Threshold Conditions 13/10/2006 20/02/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Capital One Bank (Europe) Plc Selling 11/11/2005 15/02/2007 FIRM Financial Penalty 175,000 

Nationwide Building Society Systems & Controls 13/10/2006 14/02/2007 FIRM Financial Penalty 980,000 

Trigon Pensions Limited Systems & Controls 14/09/2006 09/02/2007 FIRM Financial Penalty 10,500 

David Anthony Jones trading as D Jones Investments Fitness & Propriety Issues/Threshold Conditions 06/09/2006 07/02/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

First Call Insurance Consultants Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 01/02/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

GE Capital Bank Limited Systems & Controls 15/11/2005 30/01/2007 FIRM Financial Penalty 610,000 

David Charles Brady trading as David Brady Business Finance Fitness & Propriety Issues/Threshold Conditions – RMAR 14/09/2006 25/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

George Robert Piggott Fitness & Propriety Issues/Threshold Conditions 15/10/2004 25/01/2007 INDIVIDUAL Prohibition 

MCCS International Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 14/09/2006 25/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Olukayode Osun-Benjamin trading as Waterhouse Finance Fitness & Propriety Issues/Threshold Conditions – RMAR 14/09/2006 25/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Robert Holmes trading as B J Holmes and Son Fitness & Propriety Issues/Threshold Conditions – RMAR 14/09/2006 25/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Assist GB Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Castle Cars (Southport) Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Colin Lowther trading as Bertie Lowther & Sons Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Craig Nevill trading as MortgageHunter Independent Mortgage Services Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

David and Frank Shepherd Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Dwain Leaver trading as PHS Mortgage Brokers Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Grand Lodge of the United Kingdom Independent Order of English Mechanics 

Friendly Society (Preston Unity) Fitness & Propriety Issues/Threshold Conditions 05/09/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Ian Forster trading as Ian Forster Specialist Cars Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions

134 


Appendix 5 


Appendix 5 

135 




John Joseph Jeffers trading as The Dealmakers Finance Company Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Motorcycle and Scooter Warehouse Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Motorcycle Store Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 18/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

W Deb MVL PLC (formerly known as Williams de Broe Plc) Systems & Controls 12/10/2005 15/01/2007 FIRM Financial Penalty 560,000 

Grant Sutherland Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 09/01/2007 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Mr Eamon Fegan trading as Fegan Motors Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 21/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

John Stanley Lepine Fitness & Propriety Issues/Threshold Conditions 18/11/2005 20/12/2006 INDIVIDUAL Prohibition 

Redcats Brands Limited Systems & Controls 30/06/2006 20/12/2006 FIRM Financial Penalty 270,000 

Eastern Western Motor Group Limited Systems & Controls 20/12/2006 19/12/2006 FIRM Public Censure 

A20 Motorcycles and Scooters Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 12/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

D A McKenna Insurances Brokers Limited Fitness & Propriety Issues/Threshold Conditions 03/05/2006 14/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

ET Commercials Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 12/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Hussain Shahab Aftab trading as Hydere International Management Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 12/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Jim Russell Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 12/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

John Evans trading as John Evans Cars Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 12/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

John Heenan trading as the Mortgage Centre Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 12/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Lember Singh Sanghera trading as L S Sanghera Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 12/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Wayne Kennedy trading as Kennedy Mortgage Services Fitness & Propriety Issues/Threshold Conditions – RMAR 02/08/2006 12/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

David Bennett trading as Bennetts Independent Financial Advisers Fitness & Propriety Issues/Threshold Conditions 28/06/2006 13/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Home and County Mortgages Limited Systems & Controls 02/03/2006 06/12/2006 FIRM Financial Penalty 52,500 

Anthony Bruce Needham trading as Creative Insurance Solutions Fitness & Propriety Issues/Threshold Conditions 28/06/2006 01/12/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Mr John Vincent Burton Financial Crime 03/08/2006 01/12/2006 INDIVIDUAL Prohibition 

Rafiq Ahmed Petkar Fitness & Propriety Issues/Threshold Conditions 03/11/2005 22/11/2006 INDIVIDUAL Prohibition 

General Reinsurance UK Limited Systems & Controls 24/11/2005 21/11/2006 FIRM Financial Penalty 1,225,000 

Capital Mortgage Connections Ltd Systems & Controls 11/01/2006 20/11/2006 FIRM Financial Penalty 17,500 

Sean Julian Pignatelli Market Protection 15/09/2005 20/11/2006 INDIVIDUAL Financial Penalty 20,000 

Castle Financial Management Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 17/07/2006 10/11/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Direct Mortgages & Loans Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 17/07/2006 10/11/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Gerald Smith trading as Smiths of Alvechurch Fitness & Propriety Issues/Threshold Conditions – RMAR 17/07/2006 10/11/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Kams Specialist Cars Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 17/07/2006 10/11/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Malik Laws Partnership Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 17/07/2006 10/11/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Mohammad Yunus trading as M. Yunus & Co Fitness & Propriety Issues/Threshold Conditions 13/06/2006 17/11/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

William Faulkner trading as Policylink & Apsley Homes Estate Agency Fitness & Propriety Issues/Threshold Conditions 30/09/2005 09/11/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

ICM Group Limited Fitness & Propriety Issues/Threshold Conditions 10/07/2006 02/11/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Mr Christopher Edward Whiteley Unauthorised Activity 20/01/2005 02/11/2006 INDIVIDUAL Prohibition 

Mr Ian Paul Ruff Fitness & Propriety Issues/Threshold Conditions 10/07/2006 02/11/2006 INDIVIDUAL Prohibition

136 


Appendix 5 


Appendix 5 

137 




Mr Jon Uglow Batchelor Fitness & Propriety Issues/Threshold Conditions 10/07/2006 02/11/2006 INDIVIDUAL Prohibition 

Mrs Janice Susan Whiteley Unauthorised Activity 20/01/2005 02/11/2006 INDIVIDUAL Public Censure 

Paramjit Singh Bali (trading as Bali Financial Services) Systems & Controls 08/12/2005 27/10/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Loans.co.uk Limited Systems & Controls 14/11/2005 25/10/2006 FIRM Financial Penalty 455,000 

Wendashire Finance (2000) Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 27/04/2006 20/10/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Best Advice Mortgage Network Limited Selling 10/05/2006 19/10/2006 FIRM Financial Penalty 7,000 

G D Tancred Financial Services Limited Selling 15/03/2006 17/10/2006 FIRM Public Censure 

James Boyd Parker Listing 10/04/2002 06/10/2006 INDIVIDUAL Financial Penalty 250,000 

First Legal Services Limited Fitness & Propriety Issues/Threshold Conditions 16/06/2006 05/10/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Gerald Ward trading as Westend Motor Sales Fitness & Propriety Issues/Threshold Conditions 16/06/2006 05/10/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Morelinx Limited Fitness & Propriety Issues/Threshold Conditions 12/06/2006 05/10/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Robert Hamilton Jewell trading as R H Jewell Agricultural Insurance Consultant Fitness & Propriety Issues/Threshold Conditions 12/06/2006 05/10/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

A Jarvis Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 05/06/2006 28/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Direct Law Line Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 05/06/2006 28/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

G Sanger Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 05/06/2006 28/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Gordon Berry trading as BFG Financial Solutions Fitness & Propriety Issues/Threshold Conditions – RMAR 05/06/2006 28/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Patrick J White trading as Financial Concepts Fitness & Propriety Issues/Threshold Conditions – RMAR 05/06/2006 28/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Penta Financial Services Fitness & Propriety Issues/Threshold Conditions – RMAR 05/06/2006 28/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Bikesmart UK Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 27/04/2006 21/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

T A Porter & Sons Fitness & Propriety Issues/Threshold Conditions – RMAR 27/04/2006 22/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Langtons (IFA) Limited Selling 11/11/2005 21/09/2006 FIRM Financial Penalty 63,000 

Nationwide Finance Limited Fitness & Propriety Issues/Threshold Conditions 22/03/2006 20/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Paul Harrison Fitness & Propriety Issues/Threshold Conditions 17/02/2006 18/09/2006 INDIVIDUAL Financial Penalty 17,500 

Amerindo Advisors (UK) Limited Fitness & Propriety Issues/Threshold Conditions 02/06/2005 08/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Blackburn and Price Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 27/04/2006 08/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Christine Ola trading as Assured Mortgages Fitness & Propriety Issues/Threshold Conditions 15/03/2006 08/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Cleveland Cars Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 27/04/2006 08/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

David Cooke trading as Car-Zone.com Fitness & Propriety Issues/Threshold Conditions – RMAR 27/04/2006 08/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

ME Estate and Property Agent Fitness & Propriety Issues/Threshold Conditions – RMAR 27/04/2006 08/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Professional Independent Financial Solutions Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 27/04/2006 08/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

QB Motorcycles Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 27/04/2006 08/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

The Carphone Warehouse Ltd Systems & Controls 21/12/2005 05/09/2006 FIRM Financial Penalty 245,000 

Braemar Financial Planning Limited Selling 15/02/2006 04/09/2006 FIRM Financial Penalty 182,000 

Regency Mortgage Corporation Limited Systems & Controls 14/11/2005 04/09/2006 FIRM Financial Penalty 56,000 

Bellcom Limited Fitness & Propriety Issues/Threshold Conditions 29/03/2006 01/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Shahzad Bamdad Shirazi trading as Specialists Asset Management Fitness & Propriety Issues/Threshold Conditions 11/04/2006 01/09/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions

138 


Appendix 5 


Appendix 5 

139 




Geoffrey Thomas Robbins Unauthorised Activity 21/02/2006 31/08/2006 INDIVIDUAL Prohibition 

Walsall Bridge Insurance Consultants Limited Unauthorised Activity 21/02/2006 31/08/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

The Ancient Order of Foresters Friendly Society Limited Selling 20/05/2005 23/08/2006 FIRM Financial Penalty 55,000 

David Potter & Morgan Friendly Society Fitness & Propriety Issues/Threshold Conditions 25/04/2005 21/08/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Kenneth Holdsworth trading as Holdsworth & Company Fitness & Propriety Issues/Threshold Conditions 31/01/2006 21/08/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

The Kyte Group Limited Systems & Controls 23/12/2003 21/08/2006 FIRM Financial Penalty 250,000 

Millenium Management Services UK Limited Fitness & Propriety Issues/Threshold Conditions 16/03/2006 11/08/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Hoodless Brennan Plc Market Protection 22/12/2003 09/08/2006 FIRM Financial Penalty 90,000 

S. P. I. (Scot) Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 04/04/2006 08/08/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Merrill Lynch International Systems & Controls 17/03/2006 04/08/2006 FIRM Financial Penalty 150,000 

Jason Smith trading as Redfield Motor Company Fitness & Propriety Issues/Threshold Conditions 20/04/2006 02/08/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Leslie Packman trading as UK Motor Finance Fitness & Propriety Issues/Threshold Conditions 04/04/2006 02/08/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Paul Morrison trading as Morrison P Fitness & Propriety Issues/Threshold Conditions 05/05/2006 02/08/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Neil Johnson trading as N C J Johnson Fitness & Propriety Issues/Threshold Conditions 03/04/2006 02/08/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

GLG & Philippe Jabre Market Protection 16/12/2003 01/08/2006 FIRM/INDIVIDUAL Financial Penalty 750,000 each 

Millfield Partnership Limited (in administration) Selling 10/09/2004 01/08/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Mark Frankel trading as Mark Warren Estates Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 28/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Gerard Mulligan trading as Top Carz Fitness & Propriety Issues/Threshold Conditions – RMAR 04/04/2006 25/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Michael John Timberlake trading as MJT Mortgages Fitness & Propriety Issues/Threshold Conditions 29/03/2005 27/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Mostlot Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 04/04/2006 25/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Southern Commercial Sales Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 04/04/2006 25/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Stratten Consultancy Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 04/04/2006 25/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Montague Management Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 21/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Mr Steven Leslie Davis Systems & Controls 27/04/2005 21/07/2006 INDIVIDUAL Public Censure 

John Byrne Fitness & Propriety Issues/Threshold Conditions 13/12/2004 20/07/2006 INDIVIDUAL Prohibition 

Audley Jackson trading as Jacksons Just Mortgages Fitness & Propriety Issues/Threshold Conditions 21/02/2006 13/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Cody Francis Colville Fitness & Propriety Issues/Threshold Conditions 08/12/2005 13/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Allen Phillip Elliott (Allen Elliott) Fitness & Propriety Issues/Threshold Conditions 03/02/2003 11/07/2006 INDIVIDUAL Prohibition 

A S General Insurance Brokers Plc Fitness & Propriety Issues/Threshold Conditions 09/01/2006 10/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Autodent Crash Repair Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Cranes of Hollesley Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Frank Craney trading as City Cars Newcastle Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Frontier 2k Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

John Grubb trading as Craignairn Cars Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Jyotika Ashokkumar Inamdar Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Martin White trading as Coatbridge Car Sales Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions

140 


Appendix 5 


Appendix 5 

141 




Mary MacKellar trading as Mary MacKellar Insurance Services Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Paul Crawford Motors Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Premium Finance Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Western Devices Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 02/03/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

William Reid trading as Cordner Reid and Company Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 06/07/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Barnes Insurance Services Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 28/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Peter Wood and Associates Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 28/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Rainbow Homeloans Limited Systems & Controls 24/11/2005 26/06/2006 FIRM Financial Penalty 35,000 

Khalid Yasien trading as Khalid Fitness & Propriety Issues/Threshold Conditions 17/02/2006 22/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Douglas Cronshaw Incorporating Crossleys Insurance Consultants Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 21/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Money Matters Financial Services LLP Fitness & Propriety Issues/Threshold Conditions 17/02/2006 22/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Douglas Lyons & Lyons trading as DLL Lettings Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 15/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Cowplain Car Centre Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 13/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Haymarket & City Consulting Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 13/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Invicta Car and Finance Centre Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 13/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Simply Kitchens Direct Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 06/01/2006 13/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Joseph Quartson trading as Quartson & Co Fitness & Propriety Issues/Threshold Conditions 08/02/2006 05/06/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Donald Whiteford trading as Equity Finance Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Edward Harding trading as Bond Services Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Ka & Ap Raine trading as Dragon Motors Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Keith Robert Anderson trading as Moira Autocentre Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Paul James Mundy trading as Paul Mundy Mortgages Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Premier Insurance Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Reece Associates Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Roundbush Body and Paint Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

RS Cars (RG) Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

The Money Management Centre Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Wtr Car Sales Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 03/02/2006 31/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

E H Morgan & Son (Cirencester) Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 01/12/2005 25/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Dan Davidson (Ballymena) Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 06/01/2006 23/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Lansdown Properties Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 06/01/2006 23/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Ivory Armstrong Douglas Limited Fitness & Propriety Issues/Threshold Conditions 14/12/2005 22/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Charles Rollin trading as Greenhow & Company Fitness & Propriety Issues/Threshold Conditions 08/12/2005 19/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Octopus Mortgages Limited Fitness & Propriety Issues/Threshold Conditions 14/12/2005 19/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Commercial Direct Limited Fitness & Propriety Issues/Threshold Conditions 05/01/2006 15/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

The High Street Mortgage Company Fitness & Propriety Issues/Threshold Conditions 08/11/2005 15/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions

142 


Appendix 5 


Appendix 5 

143 




Eileen Hayes trading as E Hayes Car Sales Fitness & Propriety Issues/Threshold Conditions – RMAR 06/01/2006 10/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Mark Cooper Garages Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 06/01/2006 10/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Maurice Lynn Motors Fitness & Propriety Issues/Threshold Conditions – RMAR 06/01/2006 10/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Middleton Financial Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 06/01/2006 10/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Peter Swatton trading as Abacus Accomodation Fitness & Propriety Issues/Threshold Conditions – RMAR 06/01/2006 10/05/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Dr Albert Alphonso Carlyle Waite Fitness & Propriety Issues/Threshold Conditions 11/08/2003 03/05/2006 INDIVIDUAL Prohibition 

The London Adventist Credit Union Limited Fitness & Propriety Issues/Threshold Conditions 11/08/2003 03/05/2006 FIRM Public Censure 

Besso Limited Financial Crime 14/11/2005 26/04/2006 FIRM Financial Penalty 20,000 

Kumar Venkat trading as Gemini Connections Fitness & Propriety Issues/Threshold Conditions 08/12/2005 25/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Accident Legal Group Limited Fitness & Propriety Issues/Threshold Conditions 08/12/2005 24/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Watts, Paul trading as Friendly Finance Fitness & Propriety Issues/Threshold Conditions 17/01/2006 24/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Total Fleet Management Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 01/12/2005 20/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Easylife (UK) Limited Fitness & Propriety Issues/Threshold Conditions 14/12/2005 18/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Ideal Solutions NE Limited Fitness & Propriety Issues/Threshold Conditions 08/12/2005 18/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

WeSearch Mortgages Limited Fitness & Propriety Issues/Threshold Conditions 08/12/2005 18/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Appleby Insurance Services Limited Fitness & Propriety Issues/Threshold Conditions 08/12/2005 13/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Cornelius McGee trading as McGee Lindsay and Company Fitness & Propriety Issues/Threshold Conditions 10/11/2005 13/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Joseph Dantzic trading as Talk Finance Fitness & Propriety Issues/Threshold Conditions 08/12/2005 13/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

David John Maslen Market Protection 11/08/2004 10/04/2006 INDIVIDUAL Financial Penalty 350,000 

Deutsche Bank AG Market Protection 11/08/2004 10/04/2006 FIRM Financial Penalty 6,363,643 

Paul Andrew Tebbutt Fitness & Propriety Issues/Threshold Conditions 04/11/2004 10/04/2006 INDIVIDUAL Financial Penalty 35,000 

Royal Liver Assurance Limited Selling 31/01/2005 06/04/2006 FIRM Financial Penalty 550,000 

Clamare Legal Indemnity Limited Fitness & Propriety Issues/Threshold Conditions 08/11/2005 05/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Just Taxis Limited Fitness & Propriety Issues/Threshold Conditions – RMAR 05/12/2005 05/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Kevin Mollart Fitness & Propriety Issues/Threshold Conditions 08/12/2005 05/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions 

Modiu Bakare trading as MBA Property and Financial Services Fitness & Propriety Issues/Threshold Conditions 08/11/2005 05/04/2006 FIRM Variation/Cancellation/Refusal of Authorisation/Approval/ Permissions

144 


Appendix 6 

Appendix 6: 

Performance against Business Plan milestones 

As part of our commitment to increase our transparency and accountability 

we set out our key milestones each year in our Business Plan. We report 

publicly on our progress against these milestones once a quarter. 

The 2006/07 Business Plan set out a total of 74 milestones up to the end of 

March 2007. The overall position is set out in Appendix 6a. 

As at 31 March 2007 the position was: 

We had delivered 59 of the 74 on schedule. 

2 milestones were delivered ahead of schedule. 

Of the other 13 milestones: 

8 were re-planned, but still delivered in the 2006/07 financial year. Of these: 

• 2 were delayed by only a few days; 

• 2 were delivered in the quarter following the one for which they were 

originally scheduled; 

• 2 were amended for the reasons set out in Appendix 6b, but were still 

substantively delivered on time; 

• 1 was moved from Q1 2006 to Q4 2006; and 

• 1 was moved from Q3 2006 to Q4 2006, and then to Q1 2007. 

5 milestones are still to be delivered. Of these: 

• 2 require decisions to be made for the reasons set out in Appendix 6b; 

• 2 were re-planned for delivery in the financial year 2007/08, for the 

reasons set out in Appendix 6b; and 

• 1 was delayed by a quarter, for the reasons set out in Appendix 6b. 

In the tables included in Appendices 6a and 6b, we set out our performance 

against milestones under our three headings. We refer to specific documents 

where relevant, and provide further information where we have re-planned 

milestones or delivered them late.


Appendix 6 

145 

All 74 milestones are set out in Appendix 6a. They are shown in 

chronological order within each quarter. The numbers provide a reference to 

the explanatory notes in Appendix 6b. Milestones that have been delivered 

are shown as follows:▲. Milestones that have been changed have the 

following format:▲, and an explanation is provided in Appendix 6b. 

Milestones that have been delivered early are displayed as follows:▲, and 

more detail on these is provided in Appendix 6b.

146 


Appendix 6a 

Milestone delivered Milestone changed (refer to Appendix 6b) 

Milestone delivered early (refer to Appendix 6b) 

MILESTONES FOR 2006/07 – PROMOTING EFFICIENT, ORDERLY AND FAIR MARKETS 

Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 

Markets in Financial Instruments 

Directive (MiFID) 

Systems and controls 

(including CRD requirements) 

Aspects other than conduct of business 

and systems and controls 

Hedge Funds 

1 

Feedback on Discussion Paper ✔ 

FS06/2 published on 23 March 

20 ✔ Consultation Paper CP06/9 

Organisational systems and 

controls – Common platform 

for firms published on 23 May 

47 

37 

✔ CP06/14 

Implementing MiFID 

for Firms and Markets 

published on 31 July 

✔ Rules made 

(for CRD aspects) 

PS06/13 feedback on 

CP06/9 published in 

November 

61 

62 


PS07/2 published 

on 26 January 

✔ Implementation 

of CRD aspects 

1 January 2007 

Refer to Handbook 

Notice 60 

Capital Requirements Directive 

(Implementation in the EU of revised 

Basel framework) 

Reinsurance Directive 

Transparency Directive and 

Investment entities review 

Listing Rules update 

2 

3 

Consultation Paper with full 

draft Handbook text ✔ CP06/3 

published on 28 February 

Consultation Paper on 

implementation ✔ CP06/4 

published on 30 March 

CP06/12 ✔ 

38 5 Implementing the 

Reinsurance Directive 

published on 20 June 

49 

39 

6 

48 


refer to Handbook 

Notice 60 

✔ CP06/17 Amendments to the Prospectus 

and Listing Rules published on 5 October 

✔ Rules made refer 

to PS06/11 published 

on 27 October 

63 

64 

11 




Notice 60 




Notice 61 

Transparency in secondary 

bond markets 

21 

3 

Feedback on Discussion Paper 

✔ FS06/4 published on 5 July 

Credit Derivatives 

Reduction of backlogs to acceptable levels 

40 

Follow-up with industry ✔ 

Backlog targets achieved 30 June 

Financial Crime 

Handbook Review (Money Laundering) 

Fraud governance 

4 

5 

Rules made/Implementation ✔ Press Release 

on streamlining money laundering rules for 

firms published on 27 January 

Report ✔ Firms’ High-Level Management 

of Fraud Risk published on 27 February 

Corporate Governance 

Client money (General Insurance) 

6 

Begin follow-up with industry ✔ We 

have begun follow-up through senior 

management speeches to industry 

41 

Begin follow-up with 

industry ✔ Regional 

Governance Meeting 

held on 5 July


Appendix 6a 

147 



MILESTONES FOR 2006/07 – HELPING RETAIL CONSUMERS ACHIEVE A FAIR DEAL 


Financial Capability 

Baseline survey results 

7 

Report – Publication of financial capability 

baseline survey results ✔ published on 28 

March refer to Consumer Research 47 

Debt test 

8 

Roll-out – Launch credit self 

assessment tool – ‘The Debt Test’ 

✔ launched on 11 January 

National FinCap Strategy 

9 

Begin roll-out of National FinCap 

Strategy ✔ launched on 27 March 

Implementation of new consumer 

communication strategy 

50 

Roll-out ✔ 

http://www.moneymadeclear.fsa.gov.uk 

launched in November 

Financial Services Compensation 

Scheme (FSCS) and Financial 

Ombudsman Service (FOS) 

Review of FSCS and FOS limits 

22 

✔ Feedback Statement PS06/4 Review of 

Compensation Scheme and Ombudsman Service 

limits and miscellaneous amendments to the 

Compensation sourcebook published on 1 June 

Projections and product disclosure 

Point of sale information/disclosure 



Complaints 

Consultation Paper ✔ FS06/5 

10 1 Point of sale investment product 

disclosure: Feedback on CP170 and 

CP05/12 published in October 

4 

23 Discussion Paper 

42 

51 

Report ✔ Treating customers 

fairly: Towards fair outcomes for 

consumers published in July 

8 

Feedback Statement 

65 

12 

Consultation Paper

148 


Appendix 6a 



MILESTONES FOR 2006/07 – HELPING RETAIL CONSUMERS ACHIEVE A FAIR DEAL 


Conduct of Business 

New sourcebook, including MiFID and 

UCPD implementation 

Marketing communications and financial 

promotions 

Softing and bundling (retail aspects) 

24 

✔ Consultation Paper CP06/19 

Reforming Conduct of Business 

Regulation published on 31 October 

✔ Feedback Statement PS06/5 Bundled brokerage 

and soft commission arrangements for retail 

investment funds published on 29 June 

52 

53 

✔ Consultation Paper 

CP06/20 Financial 

promotion and other 

communications 

published on 31 October 

66 

67 

✔ Rules made (MiFID 

aspects) PS07/2 

Implementing the 

Markets in Financial 

Instruments Directive 

(MiFID) published on 

26 January 


(MiFID aspects) 

see PS07/2 under 

milestone 66 above 

Single and dual pricing for Authorised 

Collective Investment Schemes 

25 

✔ Consultation Paper CP06/7 Single and 

dual pricing for authorised collective 

investment schemes published on 20 April 

54 


refer to Handbook 

Notice 58 

68 



Notice 63 

UCITS – eligible assets/permitted Links 

SIPPs 

Effectiveness review: Depolarisation 

Effectiveness review: Mortgage stage 1 

Effectiveness review: GI stage 1 

Payment protection insurance 

11 

26 

Depolarisation: compliance 

review ✔ Published on 

30 March refer to Consumer 

Research 48 

27 

28 

✔ Consultation Paper CP06/5 The 

regulation of personal pension schemes 

including SIPPs published on 3 April 

✔ Begin Stage 1 Review 

43 

✔ Second stage thematic work 

Report on Stage 1 

Review ✔ Mortgage 

effectiveness Stage 1 

Report published on 

27 September 

55 

56 9 

✔ Rules made PS06/7 

The regulation of personal 

pension schemes including 

SIPPs – Feedback on 

CP06/5 and made text 

published on 29 September 

69 


CP07/7 Permitted 

Links for Long Term 

Insurance Business 

published on 28 

March (see also 

CP07/6 under 

milestone 71) 

✔ Report on Stage 1 Review – ICOB Review 

Interim Report: Consumer Experiences and 

Outcomes in General Insurance Markets 


13 

Equity release 

29 

✔ Second stage thematic work 

Home reversions and 

Ijara home purchase plans 

Wider-range Retail Investment Products 

12 

30 

✔ Consultation Paper CP06/8 Regulation of 

Home Reversion and Home Purchase Plans 

published on 27 April 

Feedback on DP on Wider-range Retail 

Investment Products ✔ FS06/3 


57 

✔ Rules made PS06/12 

Regulation of Home 

Reversion and Home 

Purchase Plans – 

Feedback on CP06/8 and 

final rules published on 

30 October 

70 

71 

14 

Implementation 

✔ Consultation 

Paper CP07/6 Funds 

of Alternative 

Investment Funds 

(FAIFs) published 

on 27 March


Appendix 6a 

149 



MILESTONES FOR 2006/07 – IMPROVING OUR BUSINESS CAPABILITY AND EFFECTIVENESS 


Launch of new ARROW 2 framework 

Fees and costs 

Fees Calculator for all firms 

Credit facilities for payment by 

instalments for 2006/07 fees and levies 

Costs of Regulation Project 

Better Regulation 


CP06/2 was published 

on 2 February 

14 

13 

Roll-out – Online Fees 

Calculator available to 

all firms ✔ Rolled out 

in February 

31 

32 

33 

34 

Begin roll-out ✔ from end-March 

✔ Policy Statement PS06/2 Regulatory fees 

and levies 2006/07 – including feedback on 

CP06/2 and ‘made rules’ published on 31 May 

Roll-out ✔ 31 March 

Report – The Cost of Regulation 

Study ✔ was published on 28 June 

72 

Consultation Paper 

CP07/3 Regulatory 

fees and levies 

2007/08 was 

published on 

6 February 

Update to Action Plan 

Review of industry codes 

FSCS Funding Review 

Integrated Regulatory Reporting 

Financial reporting by CRD firms 

Regulatory reporting by MiFID firms 

Introduction of revised returns for 

insurance companies and some 

friendly societies 

Review the MLAR, RMAR and 

Complaints return 

Easier to do business with 

16 

Begin review of 

industry codes ✔ 

Discussion Paper ✔ DP06/1 FSCS 

funding review published on 21 March 

17 

18 

2 

15 

✔ Consultation Paper CP06/11 

published on 31 May 


35 

New reporting forms due 

from insurers and friendly 

societies ✔ Returns due 

March 

44 

CP06/11 published on 31 May 

45 

7 

Consultation Paper CP07/5 FSCS funding review – including 

feedback on DP06/1 published on 20 March 

Begin Review ✔ 

Review began in 

mid-september 

58 10 

59 

Better Regulation Action 

Plan Progress Report ✔ 

was published on 28 June 

✔ PS06/10 Integrated 

Regulatory Reporting 

(IRR) Credit 

institutions and 

certain investment 

funds – Feedback on 

Part 1 of CP06/11 and 

made text for 2007 

reporting published 

in October 

73 

74 

15 

Implementation 

✔ Policy Statement 

PS07/1 Integrated 

Regulatory Reporting 

(IRR): Certain 

investment firms – 

Feedback on Part 2 

& 3 of CP06/11 and 

made text published 

on 26 January 

New authorisation application packs 

for financial advisers and M&GI firms 

Introduction of new authorisation 

application pack for SIPPs, Home 

Reversion and Ijara Home Purchase Plans 

Relaunch Contact Centre service 

19 

Roll-out of new authorisation 

application packs for financial 

advisers and M&GI firms 

✔ Launched on 28 March 2006 

36 

Relaunch ✔ 

end-March 

46 Roll-out ✔ 

New application 

packs launched on 

21 September 

60 

✔ First applications due 

Applications now received using the 

new authorisation application packs

150 


Appendix 6b 

▲ 10 

▲ 17 

▲ 21 

▲23 

▲38 

▲ 39 

▲ 44 

▲ 51 

▲ 56 

▲ 58 

▲ 64 

▲ 65 

▲ 69 

▲70 

▲ 73 

Appendix 6b EXPLANATORY NOTES 

▲ Milestone changed (explanation provided here) ▲ Milestone met early (explanation provided here) 

Current Status Comment on progress 

(1) Delayed more 

than a quarter 

Consultation Paper on information supplied to consumers at the point of sale including feedback on projection requirements and new proposals for key facts: this milestone 

was moved from Q1 to Q4 as a result of the shift in the MiFID negotiating timetable and the results of the cost-benefit analysis. The CP was published in October 2006. 

(2) Delayed 

one quarter 

Consultation Paper on Integrated Regulatory Reporting for deposit taking and principal position takers: publication was deferred to May 2006, due to the fact that CRD 

impacts on all scope firms from January 2007, rather than just those that chose to switch to new approaches. CP06/11 Integrated Regulatory Reporting (IRR): Credit 

institutions and certain investment firms was published on 31 May. 

(3) Minor delay Trading transparency in the UK secondary bond markets - Feedback on DP05/5: the feedback statement was published a few days late on 5 July. 

(4) Removed 

TCF Complaints DP: we have decided to hold back on the production of a DP (and CP in Q1 2007, see milestone 65 below) and are currently reviewing the best way 

to communicate this work stream. 

(5) Ahead by 

one quarter 

Consultation Paper on Implementing the Reinsurance Directive: the CP was published ahead of schedule on 20 June. 

(6) Minor delay Consultation Paper on Listing Rules: delayed by one week due to dependencies on limited resources. The CP was published on 5 October. 

(7) Delayed more 

than a quarter 

Consultation Paper on FSCS Funding Review: the FSCS Funding Review has been a highly complex issue requiring extensive review and analysis. The Discussion Paper 

published in March 2006 received the highest number of responses to any DP or CP issued by the FSA. The work undertaken by Oxera, the external consultants, also 

took longer to finalise than originally anticipated. We have also engaged key stakeholders in the lengthy discussions and analysis to ensure active engagement in the 

review. The Consultation Paper was published on 20 March 2007. 

(8) Removed 

Feedback Statement to the CP on information supplied to consumers at the point of sale including feedback on projection requirements and new proposals for key facts: 

as the CP has been moved from Q1 to Q4 (see note 1 for milestone 10 above), we anticipate that the Feedback Statement will be published in the next financial year. 

(9) Delayed 

one quarter 

Effectiveness Review: GI stage 1 report: following agreement at RPC, this was moved from Q4 2006 to Q1 2007, to take account of expansion of the original 

effectiveness review to include a fundamental review of the regime. ICOB Review Interim Report: Consumer Experiences and Outcomes in General Insurance Markets was 

published on 21 March 2007. 

(10) Ahead by 

four months 

The Better Regulation Plan Progress Report: we had planned to issue an update to our Better Regulation Plan in Q4 2006, to outline the progress we have made and our 

plans for further work. We decided to publish this early, at the end of Q2 2006, alongside the Cost of Regulation and administrative burden studies in order to better 

explain to stakeholders how we would be using the results of these studies to further improve regulation. 

(11) Amended 

Implementation of the Transparency Directive and Investment entities review: the Transparency Directive was implemented on 20 January 2007. However, the Transparency 

Directive and the Investment entities review have been de-coupled, with the implementation of the Investment entities review now expected in the summer of 2007. 

(12) Removed See note 4 for milestone 23 above. 

(13) Amended 

Consultation Paper on UCITS – eligible assets/permitted links: the European Commission has delayed publication of its eligible assets instrument, so this will not 

be covered in the Q1 2007 CP. It is likely to be dealt with in a separate paper in Q2 2007. CP07/6 Funds of Alternative Investment Funds (FAIFs) was published 

on 27 March and CP07/7 Permitted Links for Long Term Insurance Business was published on 28 March. 

(14) Amended 

Home reversions and Ijara home purchase plans – Implementation: in the 2006/07 Business Plan, we had tentatively suggested a delivery date of Q1 2007. However 

HM Treasury subsequently set an implementation date of 6 April, and this is reflected in the 07/08 Business Plan. 

(15) Delayed 

one quarter 

Financial Reporting by CRD Firms – Implementation: the Early Reporting System (ERS) went live at the end of January as planned. The BI has been delayed due to a fault 

with the transfer of submitted data to the ERS data store, affecting the accuracy of the BI outputs, which was discovered during the testing process. A fix has been 

identified and a plan is being worked on to ensure that this is dealt with as quickly as possible. Supervisors are aware of the delay and have view access of the data. 

Implementation is currently expected to be at the end of April. This will be reflected in the relevant quarterly update against the 2007/08 Business Plan milestones.


Appendix 7 

151 

Appendix 7: 

Statistics 

Number of regulated firms as at 31 March 2007, by business type 

Firm Business Type 

Personal Investment 

Investment Management 

Securities & Futures 

Banking (including e-money issuers 

and Building Societies) (2) 

Insurance Companies (3) 

Mortgage Business 

General Insurance Brokers 

Credit Unions 

Professional Firms 

Other (4) 

Category not supplied (5) 

FSA Authorised 5,390 1,756 986 306 676 8,253 3,462 571 536 714 0 22,650 

EEA Authorised 1 2 6 95 454 0 1 0 0 8 5,064 5,631 

Total 5,391 1,758 992 401 1,130 8,253 3,463 571 536 722 5,064 28,281 

Total 

Notes: 

1. These figures are as at 31 March 2007. 

2. The Bank figures include 331 Banks, 60 Building Societies and 10 E-Money issuers. 

3. The Insurance Companies figures include 82 Lloyd’s Members’ agents, Lloyd’s Managing agents and Lloyd’s 

agents. 

4. The ‘Other’ category includes: Friendly Societies, CIS Trustees, CIS Administrators, advising and arranging 

intermediaries (excluding financial advisers and stockbrokers), Media firms and Service Companies. There are 

167 Friendly Societies. 

5. ‘Category not supplied’ figures were separated out from the ‘Other’ category in the Annual Report for 05/06. 

The majority of ‘category not supplied firms’ are firms which passported into the UK under the Insurance 

Mediation Directive. The information we require from these firms is limited.

152 


Appendix 7 

Insurance companies operating in the UK as at 31 March 2007 

Insurance Companies 

Life Composite General 

Total 

UK companies 121 19 384 524 

EEA Companies with head office outside UK 

(EEA Branch) 4 5 68 77 

EEA Companies with head office outside UK 

(EEA Service) 79 21 279 379 

Non-EEA Companies 11 2 57 70 

Sub-total 215 47 788 1,050 

Lloyd’s Firms 82 1,132 

Insurance Brokers 

Total 

UK General Insurance Intermediaries 8,225 

None-UK GI Intermediaries 28 

8,253 

Banks operating in the UK as at 31 March 2007 

Banks (Wholesale or Retail) 


UK Incorporated 157 

Non-EEA Branches 79 

UK Branch of an EEA Firm 90 

UK Service of an EEA Firm 5 

331


Appendix 7 

153 

Approved Persons as at 31 March 2007 

Number of Approved Persons 167,276 

Number of Controlled Functions carried 

out by approved persons: 296,424 

of which 

– Significant Influence Functions 146,758 

– Customer Functions 149,666 

During 2006/07, we approved 54,583 applications for individuals to 

perform controlled functions. 

During the same period 1,626 individual applications were withdrawn 

during the application process and we processed applications for 34,038 

withdrawals of Controlled Functions. 

Collective Investment Schemes 

Unit Trusts ICVCs Offshore Total 

Schemes 

1 April 2006 877 361 298 1,536 

New Authorisations 57 66 47 170 

Terminations 56 9 15 80 

31 March 2007 878 418 330 1,626 

Sub-fund population: 

31 March 2007 127 1,696 3,563 5,386 

We authorise UK unit trusts and Investment Companies with Variable 

Capital (ICVCs), which are the UK version of Open-Ended Investment 

Companies (OEICs). We also recognise offshore funds, which can then be 

marketed to the general public in the UK. 

In 2006/07 we approved 1,428 changes to schemes, around 40% more 

than last year. This increase in volume was predominately due to 

authorised schemes converting to the new CIS sourcebook (COLL).

154 


Appendix 7 

Registration of mutual societies and authorisation of credit unions as at 31 March 2007 

Societies (and Branches) registered 

Industrial and 

under the Friendly Societies 

Provident Societies Acts 1974 and 1992 Credit Unions Building Societies 

(Registered under the (Includes friendly societies, (Authorised as credit unions (Registered under the 

Industrial and Provident working men’s clubs, under the Industrial and Building Societies Act 

Societies Act 1965) benevolent societies and Provident Societies Act 1965) 1986) 

specially authorised societies) 

8,350 2,284 536 60 

Note: These categories are based on the legislation under which an entity is incorporated or registered. As a result, they 

may not match the FSA Firm Primary Category Type used to determine the overall breakdown of firm types. 

During the year we dealt with over 6,000 cases of registration applications 

and related correspondence about registered mutual societies. Only a 

minority of these led to registration of a new society; most were received 

from existing societies wishing to amend their rules, register special 

resolutions or record charges or changes of address. 

The vast majority of the 151 new societies registered during the year were 

registered as Industrial and Provident Societies. The number of societies that 

cancelled their registrations was greater than the number of new 

registrations, leading to an overall slight decline in the numbers of societies. 

Information about mutual society registration matters, including forms to 

download, can be found at: 

http://www.fsa.gov.uk/Pages/Doing/small_firms/MSR/index.shtml


Appendix 7 

155 

Regulatory Decisions Committee 

The FSA’s Regulatory Decisions Committee (RDC) takes enforcement, 

authorisation and supervisory decisions that are of fundamental significance 

for the firms and individuals concerned. The RDC is appointed by and 

reports directly to the FSA Board. It provides the separation required by 

FSMA of investigations and recommendations from the decision-taking and 

issuing of statutory notices. The RDC is drawn from current and recently 

retired practitioners and non-practitioners, all of whom represent the public 

interest. 

Following the Enforcement Process Review of July 2005 the RDC has made 

a number of changes to its composition and its procedures. One change is 

that Authorisation cases are now dealt with at warning notice stage by the 

FSA Executive rather than by the RDC. Only if the applicant wishes to 

make representations will the case be passed to the RDC to consider. This 

change explains the difference in the 2006/07 and 2005/06 figures for 

Authorisation cases below. 

Authorisation refusal cases where the applicant 2006/07 2005/06 

(firm or individual) has chosen to make 

representations against a warning notice issued 

by the FSA Executive 

Brought forward from 2005/06 1 3 

New cases 17 46 

Applications refused 7 14 

Applications withdrawn by applicant before determination 7 14 

Application referred back to the FSA for reconsideration 

or cases withdrawn by the FSA before determination 1 20 

Carried forward to 2007/08 3 1 

Enforcement Cases 

(firms and individuals) 2006/07 2005/06 


New cases 89 109 

Enforcement/disciplinary action taken 71 72 

Cases referred back to the FSA for reconsideration 0 2 

Cases discontinued by the FSA 16 15 


Disciplinary actions considered by the RDC about firms who 

failed to submit a Retail Mediation Activities Return to the FSA 202 180

156 


Appendix 7 

Listing Rules cases 2006/07 2005/06 


New cases 0 4 

Disciplinary action taken 0 3 

Cases discontinued 1 0 


Commencement of civil/criminal proceedings 2006/07 2005/06 

(firms and individuals) 

Recommendation by the FSA to commence proceedings 19 4 

Authority granted to the FSA to commence proceedings 19 4 

Authority for the FSA to commence proceedings refused 

by the RDC 0 0 

Skilled Person’s reports: 

Section 166 of FSMA gives the FSA the power to commission ‘reports by 

skilled persons’. We use this typically to obtain an independent view of 

aspects of a firm’s activities which cause us concern. 

We used this power in 18 cases in 2006/07 (2005/06: 17). The total 

estimated cost to the firms and individuals covered was £3.8 million 

(2005/06: £3.7 million). Estimated costs per report ranged from £2,000 to 

£750,000 (2005/06: £400 to £976,000). Subjects of reports included: 

• controls to prevent money laundering; 

• controls over trading; 

• systems for the prevention of fraud; 

• client money calculations; 

• management of operational risk; 

• corporate governance; and 

• reviews of past mortgage business.


Appendix 7 

157 

Designated Professional Bodies in the UK as at 31 March 2007 

The Law Society 

The Law Society of Scotland 

The Law Society of Northern Ireland 

The Institute of Chartered Accountants of Scotland 

The Institute of Chartered Accountants in England & Wales 

The Institute of Chartered Accountants in Ireland 

The Association of Chartered Certified Accountants 

Institute of Actuaries 

Council for Licensed Conveyancers 

Royal Institution of Chartered Surveyors 

The FSA has a duty under Part XX of FSMA to keep itself informed about 

the way in which designated professional bodies supervise and regulate the 

carrying on of exempt regulated activities by members of the professions in 

relation to which they are established; and the way in which such members 

are carrying on exempt regulated activities. We continued to discharge these 

regulatory functions during 2006/07. 

UK Recognised Investment Exchanges and Recognised 

Clearing Houses 

Recognised Investment 

Exchanges 

Recognised Clearing 

Houses 

31 March 2006 7 2 

31 March 2007 7 2 

Recognised Investment 

Exchanges 

London Metal Exchange Limited 

ICE Futures 

EDX London Limited 

Liffe Administration & Management 

Nymex Europe Limited 

virt-x Exchange Limited 

London Stock Exchange plc 

Recognised Clearing 

Houses 

LCH.Clearnet Ltd 

CRESTCo Ltd

158 


Appendix 7 

Freedom of Information 

Volume of requests in 2006/07 

The Freedom of Information Act 2000 (FOIA or the Act) came into force on 

1 January 2005 and requires us to respond to requests for information 

within 20 working days (unless the public interest test is applicable). Over 

the last 12 months we have received 214 new requests and closed a total of 

218 requests (including four carried over from 2005/06) – 100% within the 

statutory deadline (compared with 92% of all the bodies monitored by the 

Department for Constitutional Affairs in the first three quarters of 2006). In 

56% of cases where we held the information requested we disclosed material 

which had not previously been available to the public. 

The number of requests received during the financial year 2006/07 reduced 

by 27% compared with 2005/06. However, the complexity of the requests 

received increased significantly, with many of the requests relating to highprofile 

issues which have attracted media coverage. 

We estimate that answering FOIA requests has cost approximately £800,000 

in 2006/07 (compared with £1 million in 2005/06). We cannot recover this 

expenditure from the requesters because there is very limited scope within 

the Act to charge for information. 

Breakdown of the 218 closed FOIA cases 

No response from requester 4 

Vexatious or repeated 1 

Request withdrawn 9 

Information accessible by other means 5 

Request satisfied 27 

Business as usual 13 

Over cost limit 

17 

Summary provided 

6 

No information provided 

49 

Some information 

provided 

51 

No information held 

36


Appendix 7 

159 

Requests to review the FSA’s decisions about disclosure 

If a requester is unhappy with the response provided or the way in which a 

request has been handled, we review the case; once our internal appeals 

process has been exhausted, the requester can appeal to the Information 

Commissioner’s Office (ICO). If dissatisfied with the ICO’s decision the 

requester may make a further appeal to the Information Tribunal. 

During the year we received 22 requests for internal reviews and carried 

three cases over from 2005/06) making a total of 25. Of these, 24 were 

closed – five of which resulted in us providing further information to the 

requester. The ICO also notified us of 18 new complaints during the year (in 

addition to seven carried over from 2005/06). Three complaints were 

resolved, all in favour of the FSA, and 22 complaints remain ongoing. 

One case was referred to the Information Tribunal, Slann vs ICO (and FSA). 

The Tribunal upheld our decision to withhold information under the section 

44 exemption of FOIA (prohibitions on disclosure). This was an important 

decision because most of the appeals made against us are based on our 

decision to withhold information under this exemption (which links to 

section 348 of FSMA). The full decision notice can be viewed on the 

Information Tribunal website. 

Data Protection 

Volume of requests in 2006/07 

The FSA is classed as a Data Controller under the Data Protection Act 1998 

(DPA). In order to comply with the DPA we are required to notify the 

Information Commissioner (IC) each year of the ways in which we process 

personal data. We submitted our annual notification to the IC in November, 

which can be viewed on their website. 

We must respond, within 40 calendar days, to Subject Access Requests made 

by individuals who want to know what information we hold about them. 

During the year we received 53 Subject Access Requests and responded to 

56, 96.5% within the statutory 40 calendar days. 

Listing activity in 2006/07 

Over the last 12 months we have approved approximately 1,900 

transactions, which is an increase of 20% compared with last year. In 

particular the number of debt transactions submitted to us for approval has 

continued to significantly increase as a result of a number of issuers 

continuing to choose the UK as their Home Competent Authority following 

the introduction of the Prospectus Directive (PD) in 2005. Since the 

introduction of the PD, which harmonised rules for issuing securities across 

EU member states, the total number of documents submitted to us for 

approval has risen by over 55% compared with the period before the 

introduction of the PD.

PUB REF: 000992 

The Financial Services Authority 

25 The North Colonnade Canary Wharf London E14 5HS 

Telephone: +44 (0)20 7066 1000 Fax: +44 (0)20 7066 1099 

Website: www.fsa.gov.uk 

Registered as a Limited Company in England and Wales No. 1920623. Registered Office as above.

FSA Annual Report 2006/07 - Better Regulation Ltd

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