The Financial Conduct Authority (FCA) is a UK financial regulatory body that was established in 2013. It is responsible for regulating the conduct of financial services firms and ensuring that they comply with the relevant laws and regulations. The FCA is an independent body, funded primarily by fees charged to the firms it regulates. These fees are collected from firms in the form of an annual fee, a periodic fee, and a transaction fee. The FCA also receives funding from the UK government, which is used to cover its operating costs. It was formed as a result of the Financial Services Act 2012, which replaced the Financial Services Authority (FSA). The FCA was created to simplify and streamline regulation of financial services firms, while also increasing consumer protection.
It has four main and overlapping objectives:
Maintaining market integrity: This involves monitoring markets for any signs of abuse, such as insider trading or market manipulation. The FCA regulates and supervises financial markets and firms to ensure they comply with its rules and standards. It also ensures fair and effective competition and protects consumers from harm.
In order to achieve this, the FCA conducts market surveillance, regular inspections, audits, investigations and enforcement activities to detect and deter market abuse. It issues guidance and regulations to promote fair and transparent markets, such as the Market Abuse Regulation and the Senior Managers and Certification Regime. It also collaborates with domestic and international regulators to share information and coordinate actions to prevent cross-border market abuse and maintain market integrity. By working closely with other regulatory bodies, such as the Bank of England and the Prudential Regulation Authority, it also promotes a coordinated approach to maintaining market integrity.
Promoting effective competition: This involves ensuring that consumers have access to a range of products and services at competitive prices. The FCA promotes effective competition by regulating and supervising financial markets and firms to make certain they operate in a way that benefits consumers and promotes innovation. This ensures that the markets it regulates are transparent and accessible.
For this to happen, the FCA studies the market and investigates and addresses any competition issues in financial markets, such as barriers to entry or market concentration. This may be done through the development of industry codes of conduct, the promotion of innovation, or by providing regulatory support for new products and services. In this aspect the FCA works closely with other regulatory bodies, such as the Competition and Markets Authority, to promote a coordinated approach.
Protecting consumers: The FCA protects consumers by regulating and supervising financial markets and firms to ensure they treat customers fairly and provide them with appropriate products and services. Its consumer protection objectives are to secure an appropriate degree of protection for consumers and to protect and enhance the integrity of the UK financial system.
It uses a range of tools and approaches to achieve this objective. It regulates financial firms to ensure they comply with its rules and standards, such as the Conduct of Business Sourcebook (COBS), which sets out the standards firms must follow when dealing with customers. It also conducts regular inspections and investigations of financial firms to identify and address issues, such as mis-selling or unfair contract terms. Providing consumer education and guidance further helps consumers make informed financial decisions and protect themselves from scams and frauds. In addition, the FCA also operates a consumer complaints service, which enables consumers to make complaints about financial firms and products and seek redress for any harm they have suffered. There is close cooperation between the FCA and other regulatory bodies, such as the Financial Ombudsman Service and the Financial Services Compensation Scheme, in this objective.
Enhancing financial crime prevention: This is done by regulating and supervising financial firms to ensure they have effective systems and controls in place to prevent financial crime, such as money laundering and terrorist financing. Its focus here is to reduce the risk of financial crime and to ensure that the markets it regulates are clean, transparent and hostile to criminals.
To achieve this objective, it conducts regular inspections and investigations of financial firms to identify and address any financial crime risks and weaknesses in their systems and controls. It works closely with law enforcement agencies, such as the National Crime Agency and the police, to share information and coordinate actions to prevent and detect financial crime. It also provides guidance and training to financial firms and employees to help them identify and report suspicious activity and to comply with anti-money laundering regulations and sanctions regimes. Sanctions and enforcement action can also be taken against firms or individuals who breach its rules and standards, including fines, criminal prosecutions, and restrictions on business activities. In its work, the FCA works closely with other regulatory bodies such as the Office of Financial Sanctions Implementation and the Joint Money Laundering Intelligence Taskforce, to enhance the UK’s overall approach to financial crime prevention.
The FCA has quite a wide jurisdiction over banks, building societies, credit unions, insurers, investment firms, mortgage lenders and brokers, stockbrokers and other intermediaries who provide advice on investments or pensions. It also has powers to investigate potential breaches of consumer protection law by these firms or individuals working for them. Since its formation in 2013, the FCA has taken action against numerous firms for failing to meet its standards or breaching consumer protection law. In 2018 alone it imposed fines totalling £237 million on various companies for misconduct, including mis-selling insurance policies and providing unsuitable advice on investments. As examples of individual action, in 2017, the FCA fined UBS £27 million for failing to adequately protect client money and assets from the risks of financial crime and misappropriation, and in 2019, the FCA fined Barclays Bank £26 million for failing to adequately manage conflicts of interest between its investment banking and corporate finance businesses.
Overall, the FCA plays an important role in protecting consumers from unfair practices by financial services firms while also promoting competition between them so that customers can get better value for money when choosing products or services from them. Its four main objectives are designed to ensure that markets remain fair and transparent while also preventing financial crime such as money laundering or terrorist financing from taking place within them.