The change is in line with the recommendation of the joint parliamentary committee scrutinising the Financial Services and Markets Bill which was introduced into the House of Commons yesterday.
The committee, headed by Lord Burns, former Treasury permanent secretary, expressed serious concerns that the proposals as they previously stood could violate the European Convention on Human Rights and undermine the effectiveness of the new body.
Patricia Hewitt, Economic Secretary to the Treasury, said that the legislation will lay down the framework for "an effective, modern, world class regulator for a modern, world-class industry". She said that the aim was "light touch" but with proper protection where necessary against "sharp practice, incompetence" and on pricing.
She also stressed the Government's determination to ensure that the Bill is compatible with the European Human Rights convention.
The issue of costs surfaced in cases such as that of Keith Percy, former head of Morgan Grenfell Asset Management, who was reprimanded over his role in the Peter Young scandal, and Ian Hopkins of Barings. In both cases the ability of the FSA's predecessors, the SFA and Imro to force defendants to pay the entire costs of the investigation against them had meant that defendants who felt they had a case had settled rather than face financial ruin.
Ms Hewitt has accepted in principle the committee's recommendation that defendants should be entitled to legal assistance in disciplinary hearings and is talking to the Lord Chancellor's department about what form that assistance should take.