LONDON (Reuters) — Britain's financial services firms remain concerned about the burden of regulation from the Financial Services Authority and most are unclear about the shift to regulation based on principles, a report showed yesterday.The biennial report by the Financial Services Practitioner Panel, which represents firms regulated by the FSA, showed on Thursday that firms rated their experience with the regulator as six out of ten on average, unchanged from the last survey in 2004.

The panel said it found improvements in areas like the FSA's relationships with larger wholesale firms, but said it also found many "frustrated practitioners", especially among retail financial services companies. Eighty-five percent of firms said they found the regulatory burden continued to increase.

The FSA is reviewing the costs it imposes on companies and has already cut the burden substantially, but the administrative cost of FSA regulation for firms it oversees runs at around 600 million pounds ($1.17 billion) a year.

The survey showed the financial services sector welcomed the watchdog's move towards principles-based regulation and away from "box ticking", with 75 percent expressing support, but 55 percent of respondents said they were unclear about the new system.

"Firms are uncertain about what the FSA means by principles- based regulation and particularly by the Treating Customers Fairly (initiative)," Roy Leighton, chairman of the panel, said.

He said the FSA should ensure its staff were trained to answer queries and guide firms, particularly smaller companies.

"What we want to see in a principles based regulation environment is people in the FSA being as good as people in the (regulated firms) -- historically, that has not been the case, Leighton said. "They have to upgrade quality of the people, right through to contact centre (dealing with smaller firms). This doesn't mean changing people, it means upgrading training."

Yesterday's report, the fourth by the panel, also showed the FSA was seen by regulated firms as protecting consumers "to the detriment of other objectives" and sometimes "encouraging consumers to think that problems were worse than they were."

"The practitioners felt it was not unreasonable to expect consumers to read what they were given and ask questions if they did not understand," Leighton said.

"A lot of effort has gone in ... to try to persuade the FSA that while we will treat customers fairly, the consumer has to take part of the responsibility."

The FSA, set up five years ago, has in the past been criticised by firms it regulates as being heavy-handed and costly. It has since accelerated a move to lighter-touch regulation and is carrying out an internal review. A source at the regulator said last month it plans to trim its workforce by ten percent by 2010.

It is also under review by the National Audit Office, which scrutinises spending by central government and other bodies.

The FSA said it would set out its response to the issues raised by the panel in its business plan for 2007/08.

"Regulation is by its nature unlikely to be popular with the regulated," FSA chief executive John Tiner said.

"I am pleased to see that firms welcome our focus on more principles-based regulation and while I understand their concerns about its implementation, it is inherent in the approach that firms will get less prescriptive detail than was the case previously."