Why does the FCA exist?

Compliance Knowledge Base | FCA Compliance Training

Posted by: Rosie Anderson Published: Tue, 24 Dec 2019 Last Reviewed: Tue, 24 Dec 2019
Why does the FCA exist?

The Financial Conduct Authority (FCA) was founded in 2013 following the Financial Services Act (2012). This independent, non-governmental body takes responsibility for regulating and managing the conduct of financial services firms to protect customers and the economy. This entails a broad range of roles and responsibilities, which are outlined in the of the Financial Services and Markets Act 2000 (FSMA).

Why does the FCA exist?

Previously, the financial services firms were regulated by the Financial Services Authority (FSA). However, this body was split into the FCA and the Prudential Regulatory Authority (PRA) in 2013. In 2008, the government reported a financial crisis that necessitated a complete restructure of financial regulation in the UK. This decision was hardly shocking, as mis-selling, misconduct, malpractice and fraud had resulted in billions of pounds in fines, compensation and other penalties for businesses. Therefore, the FCA worked incredibly hard to establish and implement guidelines for businesses to follow to protect consumers and salvage the UK's economy.

What does the FCA do?

The FCA oversees the financial, professional and ethical conduct of financial service providers, including:

  • Banks and building societies
  • Insurers and independent financial advisers
  • Mutual societies
  • Investment managers and stockbrokers

The FCA pledge to ensure that these organisations actively engage with treating customers fairly (TCF) and training competence (T&C). The FCA also apply their '11 Principles for Businesses' as criteria to measure and regulate each company's activities and treatment of customers. These are standards of conduct that all firms must follow to meet regulatory obligations. Therefore, through the Principles for Businesses, the FCA aims to help companies put the interests of their customers, and the integrity of their services, at the core of what they do.

FCA will also launch an enforcement investigation wherever there are circumstances suggesting non-compliance. There is a low threshold for this, 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.

Why does the FCA exist?

The FCA also promote fair competition in consumers' interests, which 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.

Why is the FCA important?

The financial services industry is one of the main contributors to the UK economy, so it's vital that consumers can trust them. Many families in the UK are seeking ways to reduce household debt, recover from financial difficulty and save or invest money with a good return. They need to know that they can trust financial services and have confidence that the products they spend money on meet their needs. The FCA has many duties, however, their primary objective is to protect customers from unfair treatment. The FCA help businesses understand and implement appropriate measures to ensure that their customers are treated fairly. This means that consumers can trust these organisations.

The fair treatment of customers also benefits businesses, as this behaviour will help to minimise the risk of financial mis-selling, avoid reputational damage, reduce complaints and improve customer retention. By adhering to the Principles for Businesses, companies not only reduce the risk of being prosecuted but also gain more customers by aligning themselves with admirable values.

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