Financial firms expect compliance costs to jump 20% following regulatory split

Half of the senior compliance officers surveyed by consulting firm Protiviti predicted that the cost to firms of complying with regulations would rise under the new regime, which is expected to come into force next year. The survey, as reported by the Scotsman, also showed that 83% of firms were not yet completely prepared for the changeover: 63% of firms said that they were "partially" prepared, while 13% said that they were "only just starting to prepare" for the changes.

The draft Financial Services Bill, which is currently before Parliament, will see the FSA's existing functions taken on by two independent bodies – the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The PRA, part of the Bank of England, will handle most of the day-to-day regulation and supervision of "systemically important" banks, building societies and insurers, while the FCA will handle conduct and compliance issues.

"There is clearly a great deal of concern among financial services institutions around the new regime being initiated in early 2013," said Bernadine Reese, managing director of Protiviti. "The changes being made to UK financial regulation are substantial and radical, yet the concern is that many firms remain unprepared."

However banking law expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com said that it was "difficult to see how this figure could be accurately quantified" given the amount of regulation which has been announced, but which is yet to be drafted or implemented.

Two-thirds of respondents to the survey felt that the new system was "unlikely to be effective" in preventing another financial crisis, Protiviti said, while 62% of respondents also expressed their concerns that new regulation could make the UK less attractive as a place to carry out business. Only 7% said that the changes would make the UK a "better" place to conduct business.

The FSA was recently reorganised internally into a 'twin peaks' model, intended to reflect the new regulatory structure. It announced a 15.6% gross increase in regulatory fees to cover its programme of work for financial year 2012/13 in February this year, to cover its own costs as well as the fees it charges on behalf of the Financial Ombudsman Service (FOS), Financial Services Compensation Scheme (FSCS) and Money Advice Service (MAS). In its annual statement, the FSA said that the cost of the restructuring process amounted to 28% of the increase in its annual levy, while modernising its IT infrastructure in preparation for the transition would likely cost a further £22.4 million.

The PRA and FCA will be able to share information, the Government has said, meaning that firms which will be regulated by both bodies will only have to submit paperwork once.