FSA paper sets out how the proposed conduct regulator will deliver its objectives
The Financial Conduct Authority (FCA) will, when established in late 2012 or early 2013, be the lead financial services conduct regulator, responsible for protecting consumers and promoting confidence in financial services and markets. The Financial Services Authority (FSA) yesterday issued a paper (the FCA Paper) on how the FCA will approach the delivery of its objectives. The FCA Paper can be read here and the attendant press release can be read here.
The FCA Paper follows the publication by the Government on 16 June 2011 of its White Paper “A new approach to financial regulation: the blueprint for reform“. We discussed the White Paper in this post and what it says about the FCA in this post. Our related posts on the Government’s February 2011 consultation paper “A new approach to financial regulation: building a stronger system” can be found here.
As an adjunct to the publication of the FCA Paper, Margaret Cole, the Director of enforcement and financial crime at the FSA, today discussed the FCA’s new regulatory appproach in a speech that can be read here.
Contents of the FCA Paper
The FCA Paper gives an overview of the Government’s intentions in establishing the FCA - see “Intentions behind the FCA” below – and of the culture that it hopes that the new regulator will develop, and then sets out in six chapters the FCA’s proposed:
- Objectives and powers
- Regulatory approach in discharging its responsibilities
- Functions, including supervision, policy-making, authorisations and enforcement
- Coordination with other regulatory authorities, both in the UK and internationally
- Next steps in implementing its operating model.
The FCA will regulate the conduct of 27,000 firms in the retail and wholesale banking, investment, securities and insurance markets. It will responsible for the prudential supervision of around 24,500 of those firms (with the balance, being firms of systemic importance to the financial system, being prudentially regulated by the Prudential Regulation Authority).
Intentions behind the FCA
The overview contained in the FCA Paper summarises the Government’s principal intentions in establishing the FCA:
The FCA will have the single strategic objective of protecting and enhancing confidence in the UK financial system and three operational objectives:
• securing an appropriate degree of protection for consumers;
• promoting efficiency and choice in the market for financial services; and
• protecting and enhancing the integrity of the UK financial system.
The FCA will also have a duty to discharge its (general) functions in a way that promotes competition, so far as is compatible with its objectives. It will have a free-standing duty to have regard to the importance of taking action to minimise the extent to which regulated businesses may be used for a purpose connected with financial crime. It must also have regard to six regulatory principles.
The government’s intention is to establish the FCA as an organisation which will:
• promote good outcomes for consumers, through a differentiated and proportionate approach which takes into consideration the knowledge and financial sophistication of the various types of consumer and which promotes competition, so far as is compatible with its objectives;
• be more outward-looking and engaged with consumers than the FSA has been, (providing more consumer-oriented and more effective communications) and better informed about their concerns and behaviour where this is relevant to regulatory action;
• set clear expectations for firms and be clear about what firms can expect from the FCA;
• intervene earlier to tackle potential risks to consumers and market integrity before they crystallise; and
• be tougher and bolder, building on and enhancing the FSA’s credible deterrence strategy, using its new powers of intervention and enforcement.
The FCA will aspire to command the respect of consumers and of the firms it regulates. It will establish an organisational culture and behaviour that reflects, and is best equipped to deliver, its new role and wide-ranging responsibilities. The culture will be based on judgement and sound analysis. The FCA will be transparent to external stakeholders, fully acknowledging that openness and transparency can lead to improved consumer outcomes. It will be cooperative not only internally but also externally with the PRA and with other domestic and international regulators. The FCA will be an organisation that says what it wants and what it means, clearly and succinctly, taking prompt action to achieve its goals.
To do this, the FCA will need to retain and attract professional and dedicated staff, equipped with the skills and knowledge to tackle the difficult issues ahead. It will need to be a dynamic and learning organisation, committed to developing individuals within a career that includes management and specialist paths.
Central to the FCA’s decision-making process will be a senior level, high quality, business and market analysis team. This team will provide the thorough analysis required to understand how markets work and how they interact with consumer behaviour. It will identify the features of industry economics (such as very high returns on particular products) which may indicate or create incentives for actions detrimental to consumer interests. Its analysis will underpin decisions on where and when to intervene and how an intervention will affect the market as a whole, including competition.
The Financial Services Authority invites comments on the FCA Paper. The Government currently envisages that the new regulatory architecture will be in place by the end of 2012.
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