The Financial Conduct Authority will have responsibility for taking regulatory action to counter financial crime
UPDATE 20 June 2011: The Government published its White Paper and draft Bill on the reform of UK financial regulation on 16 June 2011. We give an overview of the proposed regulatory structure as set out in the White Paper in this post of 17 June 2011 and examine what the White Paper says about the Financial Conduct Authority in this post of 19 June 2011.
Detailed proposals (the Proposals) for the reform of UK financial regulation were published by HM Treasury on 17 February 2011. Here is the Proposals document. This is the fourth of four posts looking at those aspects of the Proposals that are most interesting from a Corporate lawyer’s perspective.
This post discusses the new Financial Conduct Authority’s (the FCA) responsibility for countering financial crime within the regulatory system. The other posts give an overview of the Proposals and of the next steps as the Government moves towards producing legislation to implement the changes, look in detail at the FCA, and discuss wholesale and markets regulation.
The FCA generally
The FCA will be established as a specialist regulator with responsibility for, in the words of the Proposals document, “conduct issues across the entire spectrum of financial services”. Responsibility for conduct of business regulation in the financial sector currently lies with the Financial Services Authority (the FSA). That responsibility will transfer to the FCA and the FSA will be abolished as a regulator. The FCA’s single strategic objective will be to “protect and enhance confidence in the UK financial system”. This post discusses the FCA and its powers in more detail.
Given that financial crime usually arises as a conduct issue, rather than as a prudential issue, the Government has decided that the FCA will have responsibility for taking regulatory action to counter financial crime.
The FCA’s objectives and financial crime
The FCA will have three operational objectives – facilitating efficiency and choice in the market for financial services, securing an appropriate degree of protection for consumers, and protecting and enhancing the integrity of the UK financial system. The FCA’s actions in countering financial crime will be taken under one or both of its “consumer protection” and “integrity” objectives. This will involve the FCA using its regulatory powers to counter the extent to which regulated business may be used for the purposes of financial crime.
The FCA and other players in the financial crime arena
The FCA will be the competent authority specified for the purposes of the money laundering regulations. The FCA will also be the body that maintains what the Proposals document describes as the “key links” with other actors in this area, including the police, the Serious Fraud Office, the Serious Organised Crime Agency, the National Fraud Authority and, in the future, the Economic Crime Agency (the ECA) and the National Crime Agency.
The Proposals document states that the Government remains “firmly committed” to establishing the ECA and will consult on proposals to do so in the spring of 2011.
The FCA and market abuse
The FCA will be responsible for exercising the current civil and criminal powers of the Financial Services Authority under Part VIII of the Financial Services and Markets Act 2000 (FSMA) for tackling market abuse; no substantive changes will be made to those powers. These criminal enforcement powers will not be transferred to the ECA.
Next steps in the reform process: Consultation, legislation and the end of the FSA
The Government is now consulting on the Proposals. That consultation closes on 14 April 2011. After that, the Government will publish a White Paper in the spring of 2011, including a draft Bill for Parliamentary pre-legislative scrutiny, with the expectation that the Bill will receive Royal Assent in mid-2012. The Government states in the Proposals document that it “is committed to putting the new regulatory architecture in place by the end of 2012″.
The mechanism for reform will be this Bill, which will amend the FSMA. There had been some comment that the FSMA would be repealed and replaced in its entirety, but that now seems not to be the case.
The FSA is now preparing for its own demise and for the transfer of its staff to the Prudential Regulation Authority and the FCA. The FSA described this transition process in this “Dear CEO” letter on 7 February 2011.
Our other posts on the Proposals are here:
The Financial Conduct Authority
Wholesale and markets regulation
Friendly Corporate PSL
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