As the financial services sector is one of the largest employers and contributors to the UK economy, these markets must work well for individuals, businesses and the economy. The primary objective of the Financial Conduct Authority (FCA) is to protect consumers and the economy via the regulation of these industries. This entails a broad range of roles and responsibilities, which are outlined in the of the Financial Services and Markets Act 2000 (FSMA).
What are the responsibilities of the FCA?
Protecting customers: The primary objective of the FCA is to ensure that customer protection is a higher priority than profit. As a regulator, this requires three key operational activities:
- Authorisation: The FCA monitors firms and individuals to check they meet the required standards.
- Supervision: The FCA supervises firms and individuals to ensure they meet the required standards.
- Enforcement: The FCA intervenes to impose penalties, including orders to stop trading, prosecute and secure compensation for consumers.
To ensure that businesses are treating customers fairly, the FCA set out six 'Consumer Outcome' required standards:
- Consumer outcome 1: Consumers must be confident that the firms they're dealing with treat customers fairly as part of their corporate culture.
- Consumer outcome 2: Products and services marketed and sold in the retail market must be designed to meet the needs of identified consumer groups and targeted accordingly. For example, businesses must periodically review complaints and use this information to assess the performance of the distribution channels.
- Consumer outcome 3: Consumers must be provided with clear information. This means that businesses must ensure that they keep customers appropriately informed before, during and after the point of sale.
- Consumer outcome 4: Where consumers receive advice, the advice must be suitable, with consideration applied to their specific circumstances.
- Consumer outcome 5: Consumers must be provided with products that perform as they have been led to expect, and the service they receive must be of an acceptable standard. This means that organisations must regularly review products and feedback from consumers.
- Consumer outcome 6: Firms must not impose unreasonable post-sale barriers on consumers who change product, switch provider, submit a claim or make a complaint.
To monitor standards of conduct: This is another one of the FCA's responsibilities, which ties in with their obligation to protect customers. As part of their dedication to monitoring standards of conduct, the FCA will launch an enforcement investigation wherever there are circumstances suggesting non-compliance. This is a low threshold, and more recently, the FCA has announced their plans to use investigations as a tool to determine whether any wrongdoing has occurred, rather than as a response to obvious breaches. These means they can remedy issues before they become severe incidents of misconduct.
To promote fair competition: Another one of the FCA's responsibilities includes their promotion of fair competition in consumers' interests. This adds to public value by enhancing trust in markets. For example, by monitoring the standards of conduct across the financial sector, the FCA contribute to businesses maintaining a more trustworthy brand image and reputation. The FCA's dedication to intervening where companies are non-compliant means that consumers know that they're protected. This trust in financial services stimulates competition and growth, as financial service providers who put consumers first win new business based on service, quality and price.
To enhance the UK's financial market integrity: To uphold this responsibility, the FCA endorse 11 principles for business. These are standards of conduct that all firms must follow to meet regulatory obligations:
- Integrity: A firm must conduct its business with integrity.
- Skill, care and diligence: A firm must conduct its business with due skill, care and diligence.
- Management and control: A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems.
- Financial prudence: A firm must maintain adequate financial resources.
- Market conduct: A firm must observe proper standards of market conduct.
- Customers' interests: A firm must pay due regard to the interests of its customers and treat them fairly.
- Communications with clients: A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading.
- Conflicts of interest: A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client.
- Customers: relationships of trust: A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgement.
- Clients' assets: A firm must arrange adequate protection for clients' assets when it is responsible for them.
- Relations with regulators: A firm must deal with its regulators openly and cooperatively and must disclose to the FCA appropriately anything relating to the firm of which the FCA would reasonably expect notice.
To enforce against breaches in conduct and law: Where standards of conduct are not met, the FCA take responsibility for exercising their criminal, civil and regulatory enforcement powers. For example, the FCA can withdraw a firm's authorisation, issue fines and impose criminal prosecutions. They also publish enforcement notices to inform the public about misconduct and maximise the deterrent effect of enforcement action. This means that if your firm fails to comply with the regulations, you risk compromising the business' reputation.
To collaborate with other regulatory bodies: The FCA also work closely alongside various bodies including the Prudential Regulation Authority (PRA), the Bank of England (BoE), the National Crime Agency (NCA), and many others. For example, the FCA works collaboratively with the PRA to regulate banks, credit unions and insurance companies.
Overall, the FCA's main objective is to protect consumers. Before the FCA took responsibility for regulating the financial services industry, mis-selling, misconduct, malpractice and fraud resulted in billions of pounds in fines, compensation and other penalties for businesses. The FCA work incredibly hard to monitor our sales-based culture and implement appropriate control and enforcement measures to ensure consumers and the economy do not suffer.