What is the FSA?
The Financial Services Authority (FSA) is the financial regulator for the UK. An independent, non-governmental body, the FSA was given a range of rule-making, investigatory and enforcement powers by the Financial Services and Markets Act 2000 ((FSMA 2000).
Funded entirely by the 29,000+ firms it regulates, but accountable to the Treasury and, through that, Parliament, the FSA is a company limited by guarantee. Its board sets its overall policy, but day-to-day decisions and management of the staff are the responsibility of the executive committee.
The regulator for most financial services markets, exchanges and firms, it sets the standards they must meet and can take action against firms if they fail to meet the required standards. It publishes a single Handbook of rules and guidance for all authorised firms carrying out business in the UK to follow.
Founded in 2001, its scope was widened to cover the regulation of mortgage business in 2004, again in 2005 to cover general insurance activities, and since 2009 it has also regulated banks’ and building societies’ conduct of business, including payments services.
What are its objectives?
The companies it regulates range from the smallest single-person operation to the biggest publicly listed multinationals. It will take action against firms if their activities have the potential to cause harm to one or more of its four statutory objectives given to it by FSMA 2000. These statutory objectives are:
- maintaining confidence in the UK financial system;
- contributing to the protection and enhancement of stability of the UK financial system
- securing the appropriate degree of protection for consumers; and
- reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.
When carrying out its functions, the FSA must also have regard to a set of principles of good regulation which support the statutory objectives. These include:
- using its resources in the most efficient and economic way;
- holding senior management responsible for risk management and controls within firms;
- ensuring the burdens or restrictions it imposes on the industry are proportionate to the benefits expected;
- promoting innovation in connection with regulated activities;
- cooperating with overseas regulators to agree international standards and to monitor global firms and markets effectively;
- minimising the adverse effects on competition that may arise from its activities;
- enhancing the understanding and knowledge of members of the public of financial matters.
It is required to release an annual report to provide political and public accountability and to show that it is meeting its objectives and it is under a duty to show how the draft rules it publishes relate to its statutory objectives. If it interprets the objectives wrongly, or fails to consider them, it can be challenged in the courts by judicial review.
What support does it provide?
The FSA provides financial firms with guidance and support materials. These resources aim to provide firms with the information they need to keep their day-to-day operation and activities above board.
It also provides financial businesses with case studies, FSA speeches, analyses and examples of ideal and bad financial practices. By doing so, it hopes firms can obtain a clearer picture of industry problems that may be solved using its industry-tested solutions.
What powers does it have?
The FSA has extensive statutory powers when it comes to obtaining information relevant to an investigation. It can detain people for questioning, call on the police to arrest suspects and, in most scenarios, parties are compelled to produce documents and answer questions in interview; failing to do so amounts to a contempt of court punishable by a fine, imprisonment or both. There is no right to silence.
As a risk-based regulator though, it will only pursue cases that are in line with its overall priorities and where it is important to send out a message to the market or where breaches are particularly serious.