The Financial Conduct Authority (FCA) takes responsibility for regulating all financial services industries in the UK. To protect customers, increase market integrity and promote healthy competition, the FCA has three operational activities including authorisation, supervision and enforcement. This means that financial service providers, investment firms, and consumer credit firms must be authorised. Additionally, banks, credit unions, and insurance companies must also be regulated by the Bank of England's Prudential Regulation Authority (PRA).
Operational activities of the FCA
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:
The FCA monitors firms and individuals to check they meet the required standards. Financial services providers must be authorised or registered by the FCA before they offer 'regulated activities'. Banks, credit unions, and insurance companies are regulated by the FCA and the Prudential Regulation Authority (PRA).
The FCA supervises firms and individuals to ensure they meet the required standards. The supervision is risk-based and takes a three-pillar approach: Proactive supervision of the biggest firms, reactive supervision, in response to actual events, and finally, thematic analysis, which is based on risks affecting multiple firms or entire sectors.
The FCA intervenes to impose penalties, including orders to stop trading, prosecute, and secure compensation for consumers.
By regulating firms, the FCA protects consumers and allow them to have confidence in the services offered to them. This is important to the economic stability of the country, as consumer trust in financial services stimulates competition and growth.
Who does the FCA regulate?
The FCA takes responsibility for regulating the conduct of financial services firms and markets. Financial services are defined as the economic services provided by the finance industry. This encompasses many types of businesses that manage money. For example, credit unions, banks, credit card companies, insurance companies and stock brokerages.
The FCA also regulates listed corporates and their officers on compliance with their listing and disclosure obligations. As part of its role in maintaining and restoring market integrity, the FCA is also empowered to bring enforcement proceedings against anyone for the criminal and civil offences of insider dealing and market manipulation. It can prosecute authorised firms and their officers for certain breaches of the Money Laundering Regulations.
It's worth noting that the FCA is funded entirely by the firms they regulate, by charging them fees. Financial services providers must be authorised or registered by the FCA before they offer 'regulated activities'. The first step in authorisation requires applicants to submit their business plans, risks and controls, qualifications and experience. These details are then analysed by the FCA and they make a decision. Following this, authorised firms must meet minimum standards and comply with the rules and principles.
The FCA supervises around 59,000 firms serving retail and wholesale consumers as well as users of many of the world's largest and most significant global markets. These businesses vary greatly in size and complexity, and the FCA proportionate their response to regulation based on the level of risks of harm the firms pose to consumers and market integrity.
Why is it important to be FCA regulated?
Consumers are understandably cautious when it comes to investing their money as there is always a risk that you might end up interacting with an untrustworthy firm. If a firm is FCA regulated, you can be confident that their treatment of customers conforms to the FCA's strict criteria. This takes much of the detective work and apprehension out of choosing a financial service provider, as the FCA ensures that all the supervised firms are compliant with the necessary obligations outlined in the Financial Services and Markets Act 2000 (FSMA).
FCA regulation is also important to the economic stability of the country, as consumer trust in financial services stimulates competition and growth. By abiding by the FCA's, businesses may also benefit as financial service providers who put consumers first historically win new business based on service, quality, and price. Before the FCA took responsibility for regulating the financial services industry, financial crimes resulted in billions of pounds in fines, compensation, and other penalties for businesses. The FCA work incredibly hard to monitor our sales-driven culture and implement appropriate control and enforcement measures to ensure consumers and the economy do not suffer.
How do financial services providers become authorised and registered by the FCA?
A firm must submit an application form to the FCA, who will appoint a case officer. The case officer then works with the firm to understand its processes and procedures. Following this evaluation, the officer will assess whether the business meets the requirements laid down in the FCA Handbook. The FCA also takes responsibility for approving the key individuals within the firm, including all directors and certain others holding key positions, such as Compliance Officers. As part of this assessment, the FCA must be comfortable that the individuals are fit and proper to take on these roles. After deciding on authorisation, the FCA will write to the applicant either confirming authorisation or explaining why it has been rejected.
Firms must pay a fee when they apply, followed by an annual fee thereafter. They are also required to communicate with the FCA by filing regular reports that cover items such as client money and any complaints received.