The advent of a new super regulator is expected to trigger a wave of consolidation in Britain’s financial services industry.

The Financial Times is reporting that small and medium-sized businesses face a big jump in the cost of being regulated under the Financial Services Authority, which merges 10 regulators into one all-powerful body.

Several small brokers have already sold out to deal with the heavier regulatory cost. “There is no doubt that [regulation] is laying additional requirements on broking firms and you do need economies of scale to be able to handle this additional burden,” Sir David Howard, chairman of Charles Stanley, told FT.

Michael Quicke, head of small bank Leopold Joseph and joint chairman of the FSA’s panel for small businesses, said new rules were justified, but could drive some people out of the industry. “There will be a theme of firms at the smallest end of the scale saying this is just too much bother,” he said. “The FSA is saying they have got to follow these statutory obligations and there will be some collateral damage but they are going to try to accommodate everybody.”

Roger Sanders, a financial advisor and joint chairman of the small business practitioner panel at the FSA, estimated that the increase in costs for medium-sized companies would be 30%-35%. At the very smallest companies, the extra costs imposed by the creation of a single regulator are expected to be limited to 8%. “It is not a question of whether it will succeed,” he said. “It is a question of when we will see the benefits. I believe once the dust has settled it will be a major improvement.”

Others fear they will no longer be able to get the legal advice and consulting they used to obtain free from their contact with the regulator. The only contact many smaller firms will have with the watchdog under the new approach is through a call centre, as two- or five-yearly visits are being scrapped.