The Financial Services Authority has been savaged by City business leaders in a brutal attack on the UK watchdog's "heavy-handed" compliance regime.
In an open letter to John Tiner, CEO of the FSA, the Centre for Policy Studies issues a stark warning that the UK is in danger of losing its pre-eminence as a world financial market leader.
Their concern is that the Financial Services Authority has lost the respect and support of the industry, that competitiveness is being undermined by heavy-handed compliance requirements and that innovation and entrepreneurialism is being thwarted.
The CPS says that the watchdog's power and lack of accountability is now nurturing a sense of disengagement and growing disillusionment within the financial services industry. The FSA is accused of being "an increasingly defensive and risk-averse organisation", which has contributed to a culture of prescriptive and increasingly complex regulation.
The think tank calls on the FSA to adopt a light touch regime, subject to broad rules in which senior management are given more freedom to manage their own business risk.
In response, the FSA's Tiner says the Authority "strongly supports" the call for regulation to be based on principles rather than prescriptive rules. "We are sensitive to industry concerns around the burden of regulation and we have already set in train a number of initiatives to address them."
The growing regulatory burden has emerged as a key issue for financial services firms in 2005. A recent poll of senior bankers conducted by UK think tank The Centre for the Sudy of Financial Innovation identified over-regulation as the single biggest threat facing the financial services industry. Complaints about the spiralling costs of the compliance burden also featured strongly in Finextra's annual financial markets survey and conference, Finexpo CTS.