Financial Conduct Authority

Global changes in UK financial regulation

On April 1, 2013, the UK financial regulator FSA (Financial Services Authority) ceased to exist. At the same time, two new regulatory bodies were created, which will now perform the functions that previously belonged to the FSA regulator.

From the history of the UK Financial Services Authority

The FSA was legally a limited liability company. Its guarantor was the UK Treasury. The date of appearance of the organization is June 7, 1985. The first name of the organization was SIB (Securities and Investment Board). The UK Secretary of State for Finance was its sole public representative.

In 1997, the regulator was renamed the Financial Services Authority and until April 1, 2013, performed regulatory and supervisory functions to regulate the banking, financial services, insurance, and mortgage industries. It should be noted that with the arrival of the new government in 2010, the activities of the department were heavily criticized. In particular, the new Finance Minister Osborne noted that the Financial Services Authority failed in its task and caused a gap in the regulation of business activity in the state. Also, J. Osborne almost from the very beginning advocated the reform of the organization up to its complete disbandment and transfer of powers to the Bank of England. Who now performs regulatory and supervisory functions

So, as noted above, the FSA ceased to exist on April 1, 2013. It has been replaced by two organizations: the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). Below we will look in detail at which body is responsible for what.

Prudential Regulation Authority (PRA)

This organization reports to the Bank of England and is responsible for regulating financial services companies, as well as banks, insurance agencies and investment firms. All these organizations have dual regulation: while the Prudential Regulation Authority oversees administrative and business matters, the Financial Conduct Authority will carry out supervisory regulation. The main task of the PRA is to ensure the safety of regulated financial firms. That is, the Prudential Regulation Authority ensures that the winding up of companies does not adversely affect the UK financial system. Working with insurance companies, the PRA also seeks to ensure the safety of policyholders. The Prudential Supervisory Authority has a degree of independence from the Bank of England in its day-to-day operations. The organization's activities are also aimed at setting certain capital requirements. For example, for investment companies the minimum capital must be €730,000. The governing body of the PRA includes the Governor of the Bank of England (Chairman) as well as the Deputy Governor of the Bank of England (Chief Executive). The Chairman of the Financial Conduct Authority is also a member of the governing body of the Prudential Regulation Authority.

Financial Conduct Authority (FCA)

The Financial Conduct Authority performs essentially the same functions that were previously assigned to the UK Financial Services Authority (FSA): supervises financial firms, including those that are administratively regulated by the Prudential Regulation Authority; performs prudential supervision of those firms that are not regulated by the Prudential Regulation Authority; and supervises financial markets. The strategic objective of the FCA's work is the relevant functioning of markets. In terms of operational tasks, there are only three, and they relate to ensuring the safety of financial services consumers, protecting the integrity of the UK financial system, and creating and ensuring an effective competitive environment. Compared to the FSA, the FCA will have more functions to penalize financial services firms if they breach their obligations. Also, the Financial Conduct Authority will pay more attention to the management staff in financial firms to ensure that managers meet all the requirements of the regulator. It should be noted that the Financial Conduct Authority may impose a ban on advertising of financial services if it considers that it carries a breach of the rules for the promotion of financial products, as well as on the financial services themselves, which may carry risks for potential customers. At present, all companies should structure their advertising campaign in such a way that it is clear why a particular financial product is suitable for customers.

Financial Policy Committee (FPC)

This committee consists of Bank of England management and is responsible for macroprudential regulation. That is, its main task is the prudential regulation of the UK financial system. This is the difference between the committee and the prudential supervisory authority, which regulates the administrative and business activities of companies. However, the FPC has no direct regulatory functions. Among its tasks is to contribute to the achievement of financial stability by monitoring and timely anticipating systemic risks that may threaten the system as a whole or a part of it.

A number of measures have been developed specifically for the financial policy committee that it can apply to overcome threats to the Kingdom's financial stability. In doing so, the committee decides whether to implement a particular method in each individual situation, and the prudential supervisor and, if necessary, the Financial Conduct Authority apply it in their day-to-day activities. The committee is chaired by the Governor of the Bank of England. The committee also includes his deputy (Chief Executive of the Prudential Regulation Authority) and the Chief Executive of the Financial Conduct Authority.

As can be seen from the above, the UK has taken unprecedented measures to stabilize the situation in the financial markets, including overcoming the consequences of the global financial and economic crisis. The non-governmental (albeit accountable to the government) control body FSA is being replaced by the Bank of England, whose powers have been significantly expanded. According to the Bank of England's management, as well as a number of officials, the new system, consisting of two supervisory bodies and a strategic planning organization, will bring the British regulator as close as possible to fulfilling its tasks.

The full list of companies licensed by the FCA can be found in our global bank rankings.