FSA chief committed to light-touch regulation

LONDON (Reuters) - The head of the Financial Services Authority said on Wednesday he would push ahead with the industry watchdog's controversial system of regulation, in spite of criticism of its light-touch framework of supervision in the wake of last month's Northern Rock NRK.L mortgage bank crisis.

"The FSA remains committed to implementing more principles-based regulation," said FSA chief executive Hector Sants in a speech to wealth managers in London.

"What's more I would emphasise that we will not be diverted from our efforts in implementing such a regime by recent market turbulence," Sants said in his first public speech as head of Europe's most powerful national regulator.

The FSA is facing the biggest crisis since it was set up seven years ago, having been accused, along with other regulators, of failing to do enough to prevent the first run on a UK bank in over a century.

But Sants defended the FSA's method of regulating firms by requiring their managers to run their own businesses in accordance with general principles of conduct laid down by the regulator rather than by setting down strict rules by which they must operate, as regulation is conducted elsewhere in Europe.

"I believe the recent events surrounding Northern Rock reinforce rather than contradict this need to focus on the outcomes and consequences of management actions rather than just on the compliance of the actions with a set of rules," said Sants.

Principles-based regulation is "a more efficient and real-time means (of regulating) than rule-making" in a time of market volatility, said Sants, saying he would press ahead with further regulation.

"It seems clear to me that more principles-based regulation is fundamentally important to the future success of our regulatory regime," said Sants, adding that the previous rules-based regime had failed to prevent mis-selling scandals, such as precipice bonds or improve standards of conduct.

Earlier in the day, Treasury minister Kitty Ussher told the same conference that she rejected criticisms of the UK's regulatory framework.

The government would not be forced into knee-jerk reactions to this summer's events, Ussher said, when Northern Rock fell foul of the global credit crunch and had to get emergency funds from the Bank of England.