The Financial Services and Markets Act 2000 (FSMA) is an act of the Parliament of the United Kingdom (UK). The act created a new regulatory framework for the supervision and management of the UK's banking and financial services industries. The objective of the legislation is to ensure that the UK market is fair and that everyone has access to full and similar information to make informed 'buy and sell' decisions.
Why was it created and who does it impact?
Before this Act, the term 'compliance' was relatively unfamiliar and regarded as a low priority within business activities. The FSMA was introduced as a full, accurate and accessible document detailing the roles and responsibilities of the financial services and market industries. Though many of its parts have been repealed or amended, it is as important legislation that introduced the Financial Services Authority (FSA) as a regulator for insurance, investment business and banking. The FSMA is also notable for outlining the regulatory objectives of the Financial Conduct Authority (FCA). These responsibilities include market confidence, financial stability, public awareness, protecting consumers and reducing financial crime.
The Act also establishes the Prudential Regulation Authority (PRA). The PRA is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. Their objectives include promoting the safety and soundness of these firms. Other notable features of the FSMA include:
- The requirements of firms to be authorised to conduct regulated activities
- The penalties for market abuse
- The regulations surrounding misleading a market or investors.
What changes did the Act bring?
Following the publication of these new regulations, businesses were obligated to take more responsibility towards ensuring their activities were compliant with the legislation. Companies therefore required statutory as opposed to self-regulation. This meant that employers had to respond to the updated legislation by ensuring that compliance officers had sufficient training and a sound understanding of the relevant regulatory bodies. Compliance officers were also required to competently communicate the rules and their effects on all affected staff. Therefore, the very notion of 'compliance' was revolutionised, and companies began using it as a genuinely strategic and dynamic management function.
Why is the FSMA is Important?
Due to the rises in legislation, many of the FSMA's parts have since been repealed. However, the regulations provide a framework for much of the later legislation, including the Financial Services Act 2012 and the Bank of England and Financial Services Act 2016. The changes to financial services brought by the FSMA have contributed to improved customer services, better value for money products and services, and clearer, more useful information. Consumers can feel secure in the knowledge that there are trusted authorisations and regulatory systems working hard to ensure that businesses comply with legislation such as the FSMA. If it wasn't for bodies such as the FCA, for example, the price of Freddos would probably have gone up to 97p by now.
In 2002, the market predicted that a software design company, AIT, would produce a turnover and profit of £47,000,000 and £6,700,000 respectively. The business issued a trading statement which reported that these figures were accurate. This included revenue of £4,800,000 of profit from three contracts that hadn't been confirmed. Under normal accounting practice, this should not have been included in their statement. After both contracts fell through, the company's share price fell dramatically due to the shortfalls in revenue and profit. The CEO and CFO were found guilty of recklessly making a statement, promise or forecast which was misleading, false or deceptive contrary to the market abuse regulations in Section 397 of the FSMA. As a result, the CEO was sent to prison.