Who are the FCA and what do they do?

By Kayne Osbourne MCSI | #ComplyEssentials | 0 Comments

Introduction

This is the first of our #ComplyEssentials series. In this series, we’ll cut through the regulatory jargon and explain, practically, how financial compliance works in the UK.

The Financial Conduct Authority (FCA) is the UK’s financial watchdog that regulates the conduct of 59,000 financial institutions. Independent of the government, the FCA ensures the good behaviour of firms, promoting transparency and competition whilst protecting consumers. The FCA remains on the lookout for key drivers of risk in financial markets and has a number of supervisory and enforcement tools at its disposal to identify, deter and prevent poor conduct.

By law, the FCA is tasked strategically with ensuring that the relevant market functions well by meeting its three operational objectives: protecting consumers, protecting financial markets, and promoting competition.

Protecting Consumers

Virtually every individual in the UK is a consumer of financial services. We readily avail ourselves of bank accounts, mortgages, insurance products, credit cards, savings, and investment accounts. Given the centrality of consumers to the proper functioning of the UK economy, protecting consumers is fundamental to the FCA.

The FCA ensures that businesses prioritise their customers by treating them fairly, keeping their best interests at heart, and provide them with products reflective of their needs. The FCA also acts as a gatekeeper to the industry by setting the threshold conditions for authorisation and identifying from the outset those firms with business models that present a higher risk of consumer detriment.

As a supervisory body, the FCA oversees the financial sector, ensuring compliance with its rules, keeping an eye on market developments and using both detective and preventive controls to regulate firms. As an enforcement body, armed with the findings of its supervisory work and other sources of intelligence such as whistleblowers, the FCA may impose fines, sanctions, warnings and more on bad actors – whether firms or individuals.

The FCA also runs a ScamSmart campaign targeting people who are most at risk of investment fraud. The campaign aims to provide the necessary tools for investors in order to actively check investments and encourage consumers to regularly report to the FCA when they are faced with situations of potential harm or bad conduct.

Protecting Financial Markets

For the FCA, protecting the integrity of the financial system benefits firms, individuals and society. In particular, much of the FCA’s work is performed with a view to ensuring markets are effective, efficient and reliable.

Markets need to be supported by resilient infrastructure, with an appropriate degree of access and transparency to meet the needs of the consumers, corporates and other wholesale clients alike.

The FCA ensures that:

  • Senior management are accountable for their capital markets activities, including principal and agency responsibilities.
  • There is a positive culture of proactively identifying and managing conflicts of interest.
  • There is orderly resolution and return of client assets.
  • Firms’ business models, activities, controls and behaviour maintain trust in the integrity of markets and do not create or allow market abuse, systemic risk or financial crime.
  • Market efficiency, cleanliness and resilience are delivered through transparency, surveillance and the supervision of infrastructures, as well as through their principal users.
  • Firms, acting as agents on behalf of their clients, put clients’ best interests at the heart of their businesses.
  • Early intervention in wholesale markets to mitigate the risk of harm being transmitted to retail consumers.

The Financial Services & Markets Act 2000 stipulates that the FCA must, so far as is compatible with acting in a way which advances the market integrity objective, discharge its general functions in a way which promotes effective competition in the interests of consumers.

Promoting Competition

When created in 2013, the FCA was given an objective to promote effective competition in consumers’ interests. Promoting healthy competition helps drive innovation and deliver better outcomes for consumers. More broadly, by promoting competition the FCA assists with maintaining the UK’s leading position in global financial services. Working closely with the Competition and Markets Authority (CMA) the FCA enforces against breaches of competition law.

Initiatives such as its regulatory sandbox allow firms to test innovative financial services in a controlled environment with the oversight of the FCA. This also allows the FCA to learn and develop proportionate rules, leaving room for innovation whilst identifying areas of higher risk.

What next?

We help fintechs looking to get authorised by the FCA and deal with ongoing compliance issues. Should your business require expert assistance, please contact us.