Coping with the FSA’s risk‐based approach

What does the Financial Services Authority (FSA) mean by risk‐based regulation and why have it? If the regulator adopts such an approach, how should the firms it regulates react? This paper outlines the risk‐based approach taken in the UK by the FSA and outlines strategies to cope with this type of approach. The paper also argues that in light of developments such as Basel such risk‐based approaches by regulators are here to stay and will become increasingly popular. The paper suggests that as well as establishing a riskbased approach, regulators should seek to make the system transparent and to invite comment on it.