Higher costs expected in new era of compliance for financial services

• Cost of complying with new regulation could jump to up to 20 per cent

• FSA will divide into two separate bodies next year

• Concern that many companies are unprepared for scale of regulation

A survey by consulting firm Protiviti found that half of senior compliance professionals within the industry expect their company’s costs of compliance to increase under the UK’s new dual regulatory regime.

Owen Kelly, chief executive of Scottish Financial Enterprise, said this was hardly surprising given the scale of the regulatory change facing the industry.

“Certainly some of our members have reported additional challenges emerging from the new regulatory system,” he said.

“It is important to strike a balance between effective regulation and ensuring our financial services companies remain globally competitive.”

The survey also showed that many firms are under-prepared for the changes – and that most professionals do not believe the new system would be effective in preventing a repeat of the financial crisis.

The FSA is already operating what it calls a “twin peaks” system as it prepares to divide into two independent bodies – the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) – next year.

The FCA will inherit most of the functions of the FSA and will be responsible for the business regulation of all firms. The PRA, a subsidiary of the Bank of England, will regulate systemically important firms such as banks, insurers and major investment firms, who will be supervised by both groups.

The UK government has said the two organisations will share data and companies will only have to provide paperwork once.

Protiviti’s survey found that only 17 per cent of respondents think their firm is “completely” prepared for the different reporting demands and processes of the new structure.

Some 63 per cent say they are partially prepared and  13 per cent admit they are only just starting to prepare for the changeover.

While the new regulatory regime has been set up in part to prevent another financial crisis, two-thirds of respondents felt that the system was unlikely to be effective in doing so.

There was also concern that the new regulation will make the UK less attractive as a place to carry out business.

Bernadine Reese, managing director of Protiviti UK, said: “The changes being made to UK financial regulation are substantial and radical, yet the concern is that many firms remain unprepared.”