FCA publishes policy statement on Cost Benefit Analyses

The FCA has published a policy statement on its approach to cost benefit analysis (CBA).

Designed to assess the costs and benefits of policies introduced by the regulator, it aims to quantify the likeliest impact of implementing a policy and whether it is consistent with the FCA’s proportionality principle. The statement covers areas including the following:

• The purpose of CBAs;
• When CBAs are undertaken;
  • FSMA mandates the publication of CBAs alongside drafts of proposed rules.
• How CBAs address harm and market failure;
  • The regulator sets out the outcomes it expects to see in markets, and the metrics used to measure against these.
  • Causal chains are often used to address how a proposal will address harms and the drivers of harms.
• How CBAs are used to determine the impact of a policy;
  • Considering how a proposal may directly or indirectly impact all potentially affected parties, including on firms; financial markets; and the wider economy and society.
• How costs and benefits are measured and estimated;
  • The level of detail to a cost benefit analysis will be proportionate to the individual circumstances, factoring in size; cost; strategic priority; and the risk of intervention.
• The role of wider economic impacts on CBAs; and
  • General equilibrium analysis used to measure the impact of a proposal on the general economy rather than a specific financial market.
• Assessing the FCA’s secondary objective in CBAs.
  • This assessment will be carried out where reasonably practicable given the specific nature of the proposals; the resources required; and the degree of certainty such analysis could provide.