FCA – FINANCIAL CONDUCT AUTHORITY

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The FCA will be responsible for regulating conduct in retail and wholesale markets, and will operate with the single strategic objective of protecting and enhancing confidence in the UK financial system.

Under the Government’s plans, the UK’s new model of regulation will see the responsibilities of the FSA split between two new bodies, ‘The Prudential Regulation Authority’ (PRA) and the ‘Financial Conduct Authority’ (FCA).The PRA, will be a subsidiary of the Bank of England, and will supervise deposit takers, insurers and a small number of significant investment firms.

The Financial Services Authority (FSA) has already confirmed that the FCA will be charged with ensuring conduct and markets regulation is tougher, bolder and more engaged with consumers.

At the end of June 2011 in its approach document, the FSA outlined how the FCA will assume responsibility for protecting consumers and markets regulation from the end of 2012.

The FCA approach document does not provide any draft rules; it has been designed to give an overall summary of the approach that the FCA will take. Although the overall direction of the FCA has been revealed, its structure still has until the end of 2012 to be developed. The FSA intends to use the next 12 months to develop the FCA’s operational capability and create a smooth transitional process.

The single strategic objective of the FCA will be to protect and enhance confidence in the UK financial system.

Its 3 operational objectives will be: 

1.            Securing an appropriate degree of protection for consumers

2.            Promoting efficiency and choice in the market for financial services

3.            Protecting and enhancing the integrity of the UK financial system

In addition to these 3 objectives the FCA will also have a duty to act in a way that promotes competition. It must also act to minimise the extent to which regulated businesses may be used for a purpose connected with financial crime.

The FCA will be also given new powers in product intervention. It will be able to instruct firms to withdraw or amend misleading financial promotions and to publish the fact that a warning notice in relation to a disciplinary matter has been issued.

The FCA will focus more closely on wholesale conduct than the FSA does and will also adopt a more issues and sector-based supervisory approach. Such an approach will certainly require considerable investment in additional resources.

For the FCA to operate in this way, it will need to make judgemental trade-offs between different desirable objectives. This will involve weighing up whether to protect some consumers from detriment even if this restricts choice for others. To make such an assessment the FCA will need to consult widely about how it should strike these balances, explain clearly how these judgements are made and be accountable in its decision making.

The FCA’s culture will be based on judgement and sound analysis. It intends to be transparent to external stakeholders and cooperative with the PRA and other domestic and international regulators and, to achieve this aim, the FCA will need to attract and retain staff that are equipped with the appropriate skills and knowledge to implement its tactical operations.

Key to the FCA’s decision-making process will be its new market analysis team which will be used to identify factors which may indicate or create incentives for actions that are detrimental to consumer interests. Its analysis will underpin decisions on where and when the FCA intervenes and how an intervention will affect the market.

More information may be found here on the FSA website.

In summary, the most successful way to ensure the implications of regulatory transition from the FSA to the FCA is to understand clearly where the potential risks are coming from and how to effectively prepare for a new regulatory environment. The FCA will be keen to use its powers of intervention where firms are not well prepared so it’s important that you start your transition process early to ensure your processes can withstand FCA scrutiny.

TCC delivers practical, cost efficient and independent reviews across all financial services sectors. To benefit from a pro-active review please call 020 3008 6020 or email info@theconsultingconsortium.com.

You can also register your interest in our Horizon Scanning service, where you can plot your course through the ‘sometimes’ choppy seas of financial regulation; or find further information on the FCA here.