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An Overview of the Financial Conduct Authority

Monday, 13 May 2013

In the wake of widespread criticism following the onset of financial crisis, the Financial Services Authority has finally been disbanded with its previous responsibilities split into two newly created entities.

The new bodies which took over responsibilities on April 1, 2013 are the Financial Conduct Authority (“FCA”) and the Prudential Regulation Authority (“PRA”).

The Financial Conduct Authority

The FCA is what could be termed a ‘conduct regulator’ for regulated activities and firms. It is also the prudential regulator for the majority of regulated firms that are not systemically significant. Its overall objective is to ensure that the markets function well and in fulfilling this objective it has three underlying operational objectives:

  1. To secure an appropriate degree of protection for consumers
  2. To protect and enhance the integrity of the UK financial system
  3. To promote effective competition in the interests of consumers

The Prudential Regulation Authority

The PRA is responsible for prudential regulation of the largest regulated firms, which are systemically significant. Its two objectives are:

  1. The promotion of safety and soundness of PRA authorised persons
  2. An ‘insurance objective’ to contribute to securing an appropriate degree of protection for those who are, or may become, policyholders

A New Regulatory Approach

It is envisaged that the FCA will perform the majority of regulatory activity.

In addition to a change in regulatory and enforcement culture, the two authorities have also been granted more powers. Mooted since the onset of the crisis, the Government has determined that regulation needs to be more of a day-to-day, business intrusive practice.

Additional Powers - the Financial Services Act 2012

The FCA’s additional powers, under the Financial Services Act 2012 are intended to permit the FCA to impose judgements upon regulated firms if firms do not voluntarily comply. The new powers themselves are:

  1. A product intervention rule making power, which grants it the power to make temporary rules that will require firms to withdraw objectionable products or product features.
  2. A power to impose, vary or cancel permissions to perform regulated activities, where “it appears to the FCA that it is desirable.” Including where the firm is unwilling to voluntarily impose the requested changes.

Other changes include the FCA’s power to publish details of warning notices issued to firms and individuals in an effort to increase transparency. Previously, the notices had been confidential. Notices will not be published but a statement containing sufficient information to identify the firm or individual and also to enable market users to understand the FCA's concerns will be. The statement is unlikely to identify the proposed sanction.

Potential Fines

Fines also appear set to rise. The FSA published a new methodology for setting fines in 2010, but with delays in disciplinary procedures only now being finalised, the evidence appears to be that fines will be rising. The three principles of the new guidelines are “discipline, disgorgement and deterrence.”

For more information regarding regulatory changes and compliance please contact James Crichton via e-mail or by telephone on 0207 611 4848.