Speaking yesterday at the FSA's annual public meeting, Sir Callum MCarthy, chairman and acting chief executive of the City watchdog said that it was "deeply unsatisfactory" that the forthcoming Market in Financial Instruments Directive (MiFID) from the European Union had not undergone a full cost-benefit analysis.

Financial analysts estimates that capital markets participants will be forced to spend up to EUR1 billion on technology to achieve compliance with the new rules, which are scheduled for introduction in April 2007.

The FSA's McCarthy says: "It is already clear that the MiFID changes will impose significant costs on the UK market."

Echoing the concerns of many City compliance officers, McCarthy suggested that the burden of regulation, including Sarbanes-Oxley in the US, and Basel II banking regulations and IFRS accounting rules, posed a "significant hazard" to the industry.

He promised that the FSA would look to eliminate existing rules where MiFID would apply. "To those affected by them, it does not actually much matter from where particular regulatory initiatives originated," he says. "What does matter is the cumulative cost and the strain placed on management teams to cope with the aggregate impact."

The FSA has been criticsed by City firms in the past for being too prescriptive in the application of rules and regulations and for failing to fight the industry's corner in warding off new regulation from the EU and US.