Financial Services Authority
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The Financial Services Authority ("FSA") is an independent non-departmental public body and quasi-judicial body that regulates the financial services industry in the United Kingdom. Its main office in based in Canary Wharf, London, with another office in Edinburgh. When acting as the competent authority for listing of shares on a stock exchange, it is referred to as the [UK Listing Authority] (UKLA), and maintains the Official List.
History
The FSA has the legal form of a company limited by guarantee (number 01920623). It was incorporated on 7 June 1985 under the name of The Securities and Investments Board Ltd at the instigation of the UK chancellor of the exchequer, who is the sole member of the company and who delegated certain statutory regulatory powers to it under the then Financial Services Act 1986. It changed its name to the FSA on 28 October 1997 and now exercises statutory powers given to it by the Financial Services and Markets Act 2000, which replaced the earlier legislation and came into force on 1 December 2001. In addition to regulating banks, insurance companies and financial advisers, the FSA has regulated mortgage business from 31 October 2004 and general insurance intermediaries from 14 January 2005.Statutory objectives
The Financial Services and Markets Act imposed four statutory objectives upon the FSA:
- market confidence: maintaining confidence in the financial system
- public awareness: promoting public understanding of the financial system;
- consumer protection: securing the appropriate degree of protection for consumers; and
- reduction of financial crime: reducing the extent to which it is possible for a business carried on by a regulated person to be used for a purpose connected with financial crime
Regulatory principles
The statutory objectives are supported by a set of principles of good regulation which the FSA must have regard to when discharging its functions. These are:
- efficiency and economy: the need to use its resources in the most efficient and economic way.
- role of management: a firm’s senior management is responsible for its activities and for ensuring that its business complies with regulatory requirements. This principle is designed to guard against unnecessary intrusion by the FSA into firms’ business and requires it to hold senior management responsible for risk management and controls within firms. Accordingly, firms must take reasonable care to make it clear who has what responsibility and to ensure that the affairs of the firm can be adequately monitored and controlled.
- proportionality: The restrictions the FSA imposes on the industry must be proportionate to the benefits that are expected to result from those restrictions. In making judgements in this area, the FSA takes into account the costs to firms and consumers. One of the main techniques they use is cost benefit analysis of proposed regulatory requirements. This approach is shown, in particular, in the different regulatory requirements applied to wholesale and retail markets.
- innovation: The desirability of facilitating innovation in connection with regulated activities. For example, allowing scope for different means of compliance so as not to unduly restict market participants from launching new financial products and services.
- international character: Including the desirability of maintaining the competitive position of the UK. The FSA takes into account the international aspects of much financial business and the competitive position of the UK. This involves co-operating with overseas regulators, both to agree international standards and to monitor global firms and markets effectively.
- competition: The need to minimise the adverse effects on competition that may arise from the FSA's activities and the desirability of facilitating competition between the firms it regulates. This covers avoiding unnecessary regulatory barriers to entry or business expansion. Competition and innovation considerations play a key role in the FSA's cost-benefit analysis work. Under the Financial Services and Markets Act, the Treasury, the Office of Fair Trading and the Competition Commission all have a role to play in reviewing the impact of the FSA's rules and practices on competition.
Accountability and management
The FSA is meant to be accountable to Treasury Ministers, and through them to Parliament, but in practice the FSA can do whatever it wishes with complete immunity from prosecution. It is supposed to be operationally independent of Government and is funded entirely by the firms it regulates through fines and 'fees'. Its Board consists of a Chairman, a Chief Executive Officer, three Managing Directors, and 11 non-executive directors (including a lead non-executive member, the Deputy Chairman) selected by HM Treasury. This Board decides on overall policy with day-to-day decisions and management of the staff being the responsibility of the Executive. This is divided into three sections each headed by a Managing director and having responsibility for one of the following sectors: retail markets, wholesale and institutional markets, and regulatory services.Its regulatory decisions can, in theory, be appealed to the Financial Services and Markets Tribunal.
HM Treasury decides upon 'policy' which is handed down to the FSA for implementation, this means the regulator is influenced and controlled by the Chanceller of the Exchequer.
Retail consumers
The FSA has a priority of making retail markets for financial products and services work more effectively, and so help retail consumers to get a fair deal. Over several years, the FSA has developed work to raise levels of confidence and capability among consumers. Since 2004, this work is described as a national strategy[“Financial capability in the UK", Financial Services Authority, 2004, ISBN 1-84518-176-X] on building financial capability in the UK. This programme is comparable to financial education and literacy strategies in other OECD countries, including the United States.Criticism of the FSA
Since its inception the FSA has been criticised within the IFA community. Some of the main criticisms involve the ever increasing fees charged to firms and the retrospective application of current standards to historic business practices.The regulation of the FSA is also often regarded as reactive rather than proactive. In 2005, the FSA was actively involved in crackdowns against financial advice firms who were involved in the selling of split-cap investment trusts ('precipice bonds'), with some success in restoring public confidence. Where it has been rather poorer in its remit, is in actively identifying and investigating possible future issues of concern, and addressing them accordingly. There is also some possible evidence for the view that the FSA is stifling the UK financial services industry by over-regulation, as was publicised in a leaked letter from Prime Minister Tony Blair during 2005. This highly embarrassing incident led the Chief Executive of the FSA to formally write to the Prime Minister, asking him to either explain his opinions or retract them.
See also
Notes
External links
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