FSA reforms conduct of business rules in the move towards principle based regulation
The FSA has published a policy statement that will lead to simplification of the rules firms need to follow in carrying out investment business with their customers.
The reform of the conduct of business rules is a flagship project for the FSA in the move towards principles-based regulation and away from detailed prescriptive rules. The FSA is removing much of the detail of the old rule book to create a new rule book – COBS – of about half the length. This incorporates the implementation of the relevant provisions of the Markets in Financial Instruments Directive (MiFID).
The policy statement confirms the approach set out in CP 06/19 and CP 06/20 published in October 2006 to operate on the basis of principles and high-level rules, except where detailed provisions are either required by European Union directives, or are the only practicable way to achieve a desired consumer protection or other regulatory outcome. In response to points made during the consultation process the FSA has made a number of improvements to the proposals in CP 06/19 and CP 06/20, including better layout and presentation of the Financial Promotions material, which will now be in a single COBS chapter "Communicating with clients, including financial promotions".
FSA director of retail policy Dan Waters commented: "The move toward principles-based regulation means focusing on the outcomes that really matter rather than on procedure or process. It gives firms the flexibility to achieve the needed outcomes in line with their particular business models. The approach also fits with the emphasis we place on senior management responsibility. COBS will be simpler and easier to understand and so easier to comply with, thereby helping firms to deliver better outcomes for their customers."
