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City watchdog lifts budget to tackle rogue firms

Rachel Stevenson
Tuesday 28 January 2003 01:00 GMT
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The Financial Services Authority has promised to spend more time and money clamping down on rogue firms, announcing a 3.1 per cent increase in its budget for 2003 to police the City.

Sir Howard Davies, the chairman of the FSA, revealed the regulator's spending agenda, saying its first full year in operation had "coincided with some of the most difficult conditions experienced in financial markets in living memory".

Increased pension costs, insurance premiums and rent on its Canary Wharf headquarters are also responsible for ratcheting up the FSA's budget, which is set at £200.5m for 2003-04.

The regulator is making a £2.5m contribution to its final-salary pension fund, which was £31m in deficit in March last year. Weak equity markets have widened the deficit since then, meaning the FSA's pension costs for 2003 will go up 45 per cent to £10.2m. The FSA has vowed to keep its final salary scheme, but warned staff that pay rises will only be considered in view of their impact on pension funding.

Handing out fines to firms that persistently break its rules will be a "key task" for the FSA this year, and staff numbers in its enforcement division will be beefed up by 10 per cent. The regulator has come under fire for failing to act to protect consumers who have lost thousands in failed split-capital investment trusts. MPs accused Sir Howard of being "asleep on the job" while many funds collapsed into receivership. Investors in the financially crippled insurer, Equitable Life, have also had their faith in the FSA tested.

Sir Howard, who is leaving the FSA in September to run the London School of Economics, said: "We will do more to pick up potential threats to consumers earlier, such as exaggerated claims in financial promotions or from undisclosed product risks, and to respond to these quickly and effectively."

Implementing European regulatory changes is on the FSA's spending list, as is examining UK listing rules, so that prospectuses highlight risks to investors. It also wants to raise awareness of borrowings and debt as part of its consumer education programme.

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