Howard Davies is chairman of the UK's Financial Services Authority.

The FSA, which is expected to assume its full powers in November, has taken over the duties of several regulators. It has devised a risk-based strategy, with a clear statement of the realistic aims and limits of regulation.

The strategy will identify, prioritise and address risks to the FSA's four statutory objectives: to maintain market confidence, promote public understanding of the financial system, secure appropriate consumer protection and reduce financial crime.

After identifying and classifying risks to objectives, the next task is to assess the likelihood and importance of a particular risk. This helps establish priorities when allocating resources.

When dealing with risks, regulators have generally focused on the individual company, but this can result in regulators only reacting to events. Hence the FSA will select from the full range of regulatory tools. The FSA will also examine themes or issues that may arise from particular markets, sectors, products or the external environment.

One of the most useful regulatory tools remains the power to set rules and requirements for the protection of consumers and to check that companies comply with them.

However, routine compliance visits will be a thing of the past. The FSA will instead focus on companies and areas that pose the greatest risks to the authority's objectives.