A new framework for principle-based regulation of the financial services industry has come into effect.
The move by the Financial Services Authority (FSA) towards 'principles-based regulation' has moved a step forward with the framework for recognising industry guidance.
The framework allows trade associations, professional bodies and firms to seek formal confirmation of their guidance to aid members to meet regulatory requirements from the FSA.
A policy statement from the regulator sets out the processes that industry bodies must follow for FSA confirmation of principles and the standards they must meet along with the route for consistent, efficient and effective dealing of requests by the watchdog.
FSA director of strategy and risk, Verena Ross, said: "Trade associations and others have for many years provided guidance on regulatory matters for their members. This new formalised system involving FSA confirmation will contribute towards the move to principles-based regulation, allowing us to focus on the main principles to be achieved.
"Industry guidance will give firms help and advice on ways of complying with FSA principles and high-level rules, in a way that should not only stimulate flexibility and innovation but also tailor the advice to different sectors."
The use of industry principles and guidelines is not meant to replace existing regulation, and guidance from the regulator will continue to be produced and confirmation of industries' own rules will not see a reduction in the FSA Handbook.
The FSA has also made it clear that bodies and associations are free to take up the offer or not. However, the framework and policy paper does state that FSA will not take action against a firm which has complied with recognised guidance covering a particular issue.
This principle-based regulation framework follows a consultation paper released in November 2006 which sought to provide clarity over the legal status of industry guidance, how to define it and the implications of recognising it.
The paper saw 65 responses to the proposals, most of which favoured the plans.
Commenting on the consultation paper, the Association of British Insurers (ABI) said that a shift to principle-based regulation could aid the competitiveness of the financial services industries.
Stephen Haddrill, ABI Director General, said: "Let's build on the promise of change. The FSA has shown us a tempting glimpse of a principles-based approach. Now we have to make it work.
"And as we do so, let's keep our eye on a decade - not a year - ahead. A decade in which we establish our principles-based approach as the standard for EU and worldwide success. Success that delivers fairness for customers in a vibrant, growing market."