April 2008

THE FIRST HURDLE FOR FINANCIAL SERVICES AUTHORITY ("FSA") PRINCIPLE-BASED REGULATION

The FSA is in the process of changing the way it regulates financial services in the UK. The FSA wants firms to focus on the consequences of their actions rather than on rigid adherence to specific rules.

The FSA started with a very large handbook containing detailed rules and guidance. It has reduced the size of its handbook and the firms it regulates are increasingly expected to determine whether a particular action will be viewed by the FSA as a breach of their rules by reference to a small number of high level principles. This new approach requires the management of the FSA regulated firms to apply their own judgement about whether a particular action would breach the FSA's general principles.