THE cream of the City lined up to lambast the Financial Services Authority (FSA) yesterday, accusing the regulator of forcing ever-heavier compliance costs on them.

The financial watchdog’s regime placed “too great a burden” on firms, prevented the offering of new products and services and was detrimental to consumers, the Financial Services Practitioner Panel, an FSA monitoring body, concluded. No fewer than 29 per cent of all City firms, including banks, brokers, advisers and fund managers, complained that compliance now accounts for more than 15 per cent of their total costs, according to a survey commissioned by the panel, which comprises 14 senior City figures.

Smaller retail firms were even harder hit, with 36 per cent of them saying that compliance expenses had breached the 15 per cent level.

More than half of all firms said they had reduced the nature or type of business they conducted because of costs. Accountants and solicitors were especially put off.

Concern over costs and other frustrations overshadowed more positive findings from the survey of 3,100 firms, the majority of which reckoned their relations with the FSA had improved in the past two years.

Jonathan Bloomer, the panel’s chairman, chief executive of Prudential, said: “While some encouraging signs emerged from its findings, there is clearly still much room for improvement.” He pointed to progress in reducing consultation papers, the FSA’s preference for market-led solutions and its pragmatic approach to European legislation.

On costs, firms were not so much concerned about the levy imposed on all City firms as the level of investment in staff and systems to ensure they were compliant. The majority said the cost was “excessive” and only one firm in ten thought the expense was reasonable.

Nine out of ten think compliance costs will continue to rise. Many also attacked the FSA’s cost-benefit analysis for underestimating the cost of new rules and overstating the likely benefits.

Firms also complained about the variable quality of FSA staff, with many saying they didn’t show good understanding of their businesses. Technical guidance was sometimes unclear or inconsistent. In day-to-day areas, however, firms acknowledged slight improvements since the last survey in 2002.

John Tiner, FSA chief executive, said: “We take the question of the costs of regulation, particularly for small firms, very seriously.” A new study into compliance costs was launched two weeks ago. “We believe that there may be scope to reduce their burden,” he added.

The FSA defended the quality of its staff. More than half the 400 people recruited since April were previously employed by regulated firms, it said.

In sharp contrast to the claims in the survey, it pointed to a study last year by European Economics, which found that compliance costs were just 1.6 per cent of total costs.

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