Financial Conduct Authority
Financial Conduct Authority
The Financial Conduct Authority (FCA) is a financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The FCA regulates financial firms providing services to consumers and maintains the integrity of the financial markets in the United Kingdom.
The structure of the FCA's regulatory authority takes in the Bank of England's Prudential Regulatory Authority (another FSA successor), and the Financial Policy Committee. The FCA is responsible for the conduct of around 58,000 businesses which employ 2.2 million people and contribute around £65.6 billion in annual tax revenue to the economy in the United Kingdom.
Specifically, the Act gave the Bank of England responsibility for financial stability, bringing together macro and micro prudential regulation, created a new regulatory structure consisting of the Bank of England's Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority.
The authority has significant powers, including the power to regulate conduct related to the marketing of financial products. It is able to specify minimum standards and to place requirements on products. It has the power to investigate organisations and individuals. In addition, the FCA is able to ban financial products for up to a year while considering an indefinite ban; it will havethe power to instruct firms to immediately retract or modify promotions which it finds to be misleading and to publish such decisions.
Payment Systems Regulator
In April 2015, the FCA created a separate body, the Payment Systems Regulator (PSR), in accordance with section 40 of the Financial Services (Banking Reform) Act 2013. The PSR's role is "to promote competition and innovation in payment systems, and ensure they work in the interests of the organisations and people that use them".
On 20 June 2017, the PSR announced its final decision regarding reforms to the infrastructure of the payment systems in the United Kingdom in order to encourage “better and more innovative services for customers”. The regulator's review from December 2016 found that the central infrastructure for the main retail payment systems in the United Kingdom – Bacs, Faster Payments (FPS) and LINK – do not offer effective competition. Two main changes are required:
To undertake a competitive procurement process for future central infrastructure contracts. With this, the PSR hopes to ensure fair, open and transparent procurement of the central payment systems infrastructure and enable new technology providers to enter the market.
To adopt a common international messaging standard (ISO 20022) for Bacs and Faster Payments. This change aims to lower barriers and encourage new entrants to the market.
Sectors and firms
The Financial Services Act of 2012 set out a new system for regulating financial services in order to protect and improve the UK's economy.
The FCA will supervise banks to:
Ensure they treat customers fairly
Encourage innovation and healthy competition
Help the FCA to identify potential risks early so they can take action to reduce the risks
Registering new mutual societies
Keeping public records
Receiving annual returns
Rules came into force in 2012 for Independent Financial Advisers (IFAs) following the Retail Distribution Review (RDR) rules. To be classed as an IFA, businesses need to:
Offer a broad range of retail investment products
Give consumers unbiased and unrestricted advice based on comprehensive and fair market analysis
In October 2014, the FCA launched Project Innovate to help firms overcome the regulatory barriers and promote innovation in UK. Following this initiative, in 2017 they launched a Regulatory Sandbox an environment allowing innovative firms such as Fintech and Regtech to test drive their products or services before operating in the financial market. The FCA opened their applications to join their first cohort in February 2017.
Wheatley's appointment, however, was not approved by the Treasury Select Committee. "The Government did not accept the case for a pre appointment hearing with the Chief Executive, on the grounds of supposed market sensitivity."  In July 2015, Wheatley resigned his post at the FCA following a vote of no confidence by George Osborne. In September 2015, Tracy McDermott took over from Wheatley as acting FCA chief.
Current FCA chief Andrew Bailey was appointed chief executive on 26 January 2016. In June 2012, it was confirmed that John Griffith-Jones would become the non executive chair of the FCA once the FSA ceases operations in 2013. Griffith-Jones joined the FSA board in September 2012, as a non executive director and deputy chair.
In June 2013, the Financial Conduct Authority was criticised by the Parliamentary Commission for Banking Standards, in their report "Changing Banking for Good", which stated:
The interest rate swap scandal has cost small businesses dear. Many had no concept of the instrument they were being pressured to buy. This applies to embedded swaps as much as standalone products. The response by the FSA and FCA has been inadequate. If, as they claim, the regulators do not have the power to deal with these abuses, then it is for the Government and Parliament to ensure that the regulators have the powers they need to enable restitution to be made for this egregious mis-selling.— "Changing banking for good: Report of the Parliamentary Commission on Banking Standards", House of Lords, House of Commons
There have been calls for the resignation of chairman John Griffith-Jones because of his responsibility for auditing HBOS as chairman of KPMG at the time of the financial crisis of 2007–08. There has also been criticism of chief executive Martin Wheatley because of his responsibility for the minibond fiasco in Hong Kong. There were not the customary pre-appointment hearings for either John Griffith-Jones or Martin Wheatley, so that people could not disapprove of these appointments by submitting evidence to these hearings.
On 10 December 2014, the FCA released a report from Simon Davis from Clifford Chance LLP inquiring into the events of 27/28 March 2014 relating to the press briefing of information in the FCA's 2014/15 Business Plan.
The report recommended:
That there be substantial improvement in the procedures relating to the identification, control and release of price-sensitive information,
That the final version of the FCA's Business Plan should only be made available publicly to all market participants at the same time,
That the relevant review team address the issue of price-sensitive information in any assessment of a potential thematic review, and
That the FCA urgently put in place price and volume monitoring procedures, combined with an action plan for the effective management of the FCA's reaction to any issues involving the uncontrolled release of price-sensitive information originating from or involving the FCA.
On 16 December 2014, the Treasury Select Committee commenced taking evidence on the press briefing.
Financial Policy Committee
Prudential Regulation Authority
FCA Controlled Functions