The FCA undertakes a CBA in order to analyse and estimate, where possible, the likely impacts of a policy on different groups such as industry, consumers, markets and the FCA.
The FCA has legal obligations under the Financial Services and Markets Act 2000 to undertake and publish a CBA when consulting on a proposal to make or amend rules, and when final rules differ significantly from the draft rules, so a CBA is an important part of the FCA’s accountability framework.
The PSR also has obligations under the Financial Services (Banking Reform) Act 2013 (FSBRA) to undertake and publish CBAs, but these are limited to ‘generally applicable requirements’, which in practice mean ‘general directions’ (s54 FSBRA) or ‘generally imposed requirements’ (s55 FSBRA). However, the PSR aims to be transparent to the public and its stakeholders, and it consider CBAs as an important tool to help inform policy development and help ensure that its decisions are grounded in evidence.
The Panel will have a statutory duty to:
- provide the FCA and PSR with advice in relation to their statement of policies on CBA methodology;
- provide the FCA and PSR with advice in relation to the preparation of CBAs;
- keep under review how the FCA and PSR are performing generally in carrying out their duties to undertake a CBA; and
- provide to the FCA and PSR whatever recommendations the Panel thinks appropriate as a result of such review.
The Panel will be expected to review a selection of CBAs produced by the FCA before publication. The FCA is required (under FSMA 2023) to prepare and publish a statement of policy in relation to cost benefit analysis. Amongst other matters, this must set out the threshold for cases which the requirement to consult the Panel in relation to the preparation of a CBA does not apply, as well as whether any exemptions apply.
The Panel will also be expected to report periodically on the FCA’s CBA performance and provide recommendations for continuous improvement. In particular, the Panel will provide relevant guidance to help maintain and improve the FCA’s CBA Framework. This could include providing clarity around best practice in novel techniques for quantifying impacts.
The PSR is still developing its proposed framework of engagement with the Panel and will consult with them on it once the Panel has been appointed. The PSR in general carries out two types of CBAs:
- those that it is required to carry out under its FSBRA obligations; and
- those it carries out as best practice.
The framework of engagement with the Panel will set out whether and how these separate types of CBAs would be subject to the Panel’s scrutiny.