FSA budget to rise by 10% – and extra cash will be used to get tough

Under the regulator's business plan for 2010-11, it will hire an additional 460 staff to support its new intensive supervision regime and to deal with new European Union insurance rules. Total staff numbers will rise from about 3,300 to more than 3,700, but FSA employees will have their pay frozen in 2010-11, the regulator confirmed.

The FSA, which raises its funds by levy, will have a budget of 454.7 million.

Chief executive Hector Sants, who is set to leave his role this summer, said: "Intensive supervision is inherently more confrontational. This proactive approach to supervision requires significantly more people than the old reactive model and those individuals must be of a higher quality and supported by more sophisticated systems.

"If society wants a more proactive approach, it must accept that it will have a larger and more expensive regulator."

The FSA will focus on stepping up enforcement actions and implementing reforms from the Turner Review, while preparing for the new financial stability objective proposed by the Financial Services Bill.

The authority has been on a recruitment drive for about the past 18 months to help its quest to improve banking practices. But industry sources said the regulator was finding it difficult to find staff.

With a general election expected in less than two months, the regulator's future is clouded in uncertainty. The Conservatives, tipped in the polls to win, want to dismantle the FSA and return banking supervisory powers to the Bank of England.

Industry experts said the FSA had "drawn a line in the sand" after its former light-touch, or principles-based, approach was blamed for failing to halt a financial crisis that spawned a global recession.

Tim Dolan, a partner at law firm Pinsent Masons' financial services team and formerly a member of the FSA's enforcement division, said: "Sants has stated that the FSA will 'take a view' that may well be disputed by firms and which may in some cases prove to be wrong."

He added the increased headcount was a "massive increase in resource" and that regulated companies should prepare for a more demanding FSA.

A spokesman for the FSA said the rise in budget would be net of the 30m it has raised in fines. The watchdog has already succeeded in three insider dealing prosecutions in the past year, the most high-profile recently resulting in a 21-month jail term for Malcolm Calvert, a former head of market-making at Cazenove.The amount of money collected by fines by the FSA increased to 30.8m from 26.5m last year.

Angela Knight, chief executive of the British Bankers Association, said: "We understand that smarter regulation may be more expensive, but what we would hope to see is the money going on more effective regulation and not just more administrators."