The Financial Services Authority published three independent studies yesterday preparing the ground for what is hoped to be a simplification of its rules and lower costs for the companies it regulates.
One examines the extra costs financial services companies incur in complying with the regulator's rules, the second estimates of the cost of providing the FSA with information and the third seeks to show how to identify and measure the benefits of regulation.
"We are determined to strike the right balance beween discharging our statutory duties and avoiding unjustified costs. We can do this only with a sound understanding of both the benefits and the costs of regulatory action," it said.
The FSA first announced plans to reform its rules last December. A report yesterday showed it is already reviewing those which account for more than three-quarters of the administrative costs.
Mr John Tiner, the FSA's chief executive, said: "The more significant costs appear to arise from providing point of sale documents to retail customers, monitoring employees' compliance, handling complaints and reporting to the FSA.
"We have an important programme of work ahead to assess, with an open mind, whether these incremental costs are justified by the benefits and, if not, what changes we need to make."
A study by Deloitte shows that for big corporate finance and institutional fund management companies, complying with the FSA's regulation accounts for a very small part of their overall costs and is not seen as a competitive disadvantage. It could, indeed, be an advantage, attracting mobile capital and investment banking activity.
Companies providing investment and pensions advice to private individuals face the highest regulatory costs in proportion to their overall expenses.
Roy Leighton, chairman of the Financial Services Practitioner Panel, representing these companies, urged the FSA to act decisively.
"The industry rightly has an expectation that this study will contribute to seeing real and meaningful improvement in the way that it is regulated and specifically on the issue of costs," he said.
"The panel urges the FSA not to let them down."
In particular, he welcomed the FSA's promised shift away from detailed rules to regulation based on principles, looking at the outcome rather than procedures.
"The highly prescriptive nature of the requirements in the FSA's handbook is what generates the significant incremental costs in the retail sector," he said.
"The panel expects the FSA to take quick and decisive action by removing those rules from the FSA handbook where the costs are not proportional to the benefits that they are intended to secure, and I urge the FSA to produce a clear and detailed action plan to do just that."