Financial services, regulation and ethics

Although the powers of the regulators cover many different sectors and firms with...

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...nt regime, their supervision of firms and their overall responsibility for regulation.

The present regulatory regime was established in the UK on 1 April 2013, when the Financial Services Authority was abolished and replaced by the Financial Policy Committee (FPC), the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

Financial Policy Committee (FPC)

The FPC of the Bank of England is responsible for identifying the systematic risks that are attributable to structural features of financial markets or to the distribution of risk within the financial sector and identifying unsustainable levels of leverage, debt or credit growth. Having identified risks, it is able to take various measures to counteract them. These macro-prudential tools are:

Setting countercyclical capital buffers - ensuring that banks increase capital in good times, which should also temper lending during a boom and thus dampen the effects of the credit cycle

Variable risk weights - enforcing capital requirements on specific sectors or asset classes (requiring firms to hold more capital against their riskier investments)

Leverage limits - limiting excessive build-up of on-and-off balance sheet leverage

In addition, it also has the objective to limit the impact of its policies on economic growth.

The Committee has 13 members:

It is chaired by the Governor of the Bank of England, plus

Four deputy governors for monetary policy, financial stability, prudential regulation, and markets & banking

The executive director for financial stability

The chief executive of the FCA

Five members from outside the Bank appointed by the Chancellor

One non-voting Treasury member

The Treasury provides the FPC with guidance and it is required to respond to the...

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...s to entry/fostering diversity of business models

Growth – ensure financial services makes a positive contribution to sustainable growth in the UK economy

Competitiveness – ensure the UK remains an attractive option for international institutions, contributing towards economic growth

Innovation – recognising differences in the nature and objectives of business

models and ensuring burdens are proportionate. Engaging with consumers and encouraging new ways of raising capital 

Trade – encourage trade internal investment in the UK to boost productivity and growth

Better outcomes for consumers – ensure financial service industry works in the best interests of consumers and the businesses they serve

Financial Conduct Authority (FCA)

The FCA ensures that business across all aspects of financial services and markets is conducted in a manner which advances the interests of all consumers and market participants. It has a single strategic objective of ‘ensuring that markets function well’ and three operational objectives:

Protecting consumers - securing an appropriate degree of protection for consumers

Protecting financial markets - enhancing the UK system’s integrity

Promoting competition - in the interests of consumers

To assist with the FCA’s proactive approach, it has been given powers by Government to ban or restrict financial products, to publish details of warning notices issued in relation to disciplinary actions and to take formal action against misleading financial promotions and disclose that it has done so.

List the three operational objectives of the FCA.

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Protecting consumers

This objective aims to protect consumers from potential or actual detriment by early intervention. This will necessitate a focus not only on a firm’s conduct towards consumers directly but also on the knock-on effects and implications that may result from activities in retail-related wholesale markets. In working towards consumer protection, the FCA will take account of the risk posed by some financial products, the experiences of consumers and the need for information and advice.

Measures taken by the FCA that promote competition aim to remedy both market power and information asymmetry, and this promotes consumer protection.

The FCA introduced the Consumer Duty in July 2023, which sets higher expectations for the standard of care firms provide to customers. The new duty introduces a 12th Principle to the existing 11 Principles for Businesses – the Consumer Principle – together with supporting cross-cutt...

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...cisions

Senior management responsibility – holding senior managers responsible for risk management and controls, thereby securing adequate but proportionate regulatory intervention

Recognising the differences in the businesses carried on by different regulated persons - and exercise its functions in light of this

Openness and disclosure - publishing of information about regulated persons, or requiring them to publish information to reinforce market discipline and enhance the understanding of members of the public about financial matters

Transparency – exercise functions transparently, provide appropriate information on regulatory decisions, and be open and accessible to the regulated community and the public

Which of the Regulatory Principles that the FCA deals with is to ensure that any restriction imposed on an individual or activity is appropriate in relation to the potential benefits?

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The FCA has a considerable part to play in the policing of the financial services industry in the UK. Any individual wishing to carry out one or more regulated activities must apply directly to the relevant regulator for authorisation, unless they are considered exempt.  This is termed ‘applying for Part 4A permission’. The PRA will authorise institutions that accept deposits or insurance contracts and the FCA will authorise smaller firms which advise on and sell investments, home finance activities and general insurance.

Scope

The following powers are available to the FCA over firms and individuals.

Enforcement matters

To impose penalties for market abuse

To carry out investigations

To take disciplinary action against authorised persons

To instigate criminal proceedings for offences under the FSMA

Supervision matters

To make rules including those for conduct of business, client money, financial promotions and fighting money laundering

To require authorised persons to provide information or documents

To regulate changes of control over UK authorised persons

To keep the Lloyd’s insurance market under review

To co-operate with other regulators

Authorisation matters

To grant, vary and cancel authorisations for permitted activities

To approve individuals to perform certain controlled functions and to issue codes of conduct

To be represented in court in cases of banking or insurance transfers

To authorise unit trusts

To recognise overseas collective investment schemes

To recognise investment exchanges and clearing houses

To maintain a public record of authorised persons and prohibited persons

The FCA’s roles

Direct authorisation and regulation of the UK financial services system:

Authorising businesses

Prudential regulation – ensuring authorised businesses are financia...

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...g in misleading conduct to induce an individual to make or refrain from making actions in relation to investments is a criminal offence.

The Criminal Justice Act 1993 sets out the additional criminal offence of insider dealing, where individuals use or encourage others to use information about a company which is not generally available to make a profit or avoid loss

The civil offences under s.118 of the FSMA can be any of several behaviours, as laid out in the Market Abuse Regulation 2016, onshored into UK law in 2020:

Insider dealing – dealing based on inside information

Unlawful disclosure – the disclosure of inside information to another person

Manipulating transactions – trading in a way that gives a false impression of the supply and demand for an investment to raise the price to an artificial level

Manipulating devices – trading by employing the use of fictitious devices

Dissemination – deliberately conveying false or misleading impressions about an investment or its provider

Distortion and misleading behaviour – behaviour that distorts the market in an investment

Money Laundering

The FCA can:

Levy penalties on registered businesses that are in breach of the regulations

Prosecute an officer of a registered business that is in breach of certain regulations, with a fine or up to two years in prison or both

In addition, there are the formal statutory offences of:

Acquiring, possessing, using, concealing, disguising or converting criminal property or assisting another in these actions – punishable by up to 14 years in prison

Failing to report knowledge or suspicions of money laundering activities – punishable by up to five years in prison and/or a fine

In addition to Parliament, to which other three bodies is the FCA accountable?

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Supervision is used to describe the FCA’s day-to-day regulatory relationship with authorised firms and the monitoring and regulating of them to ensure they are complying with the regulatory requirements. The overall approach to regulation is early intervention, seeking to address root causes of problems for consumers. The FCA says that it will ‘act more quickly and decisively and be more pre-emptive identifying and addressing issues before they cause harm’.

The FCA is able to deal with complaints on behalf of a large number of customers, which are known as super-complaints. An example would be the scandal of the sale of PPI insurance.

Risk based approach

The FCA has adopted a ‘risk-based’ approach for authorised firms. Firms are risk assessed and it carries out most supervisory activity on firms that it believes offer the highest risks against its objectives. It takes into account:

The likelihood of a major failing (probability)

The possible impact of that failing on the FCA’s regulatory objectives (impact)

The frequency by which a number of firms focus on higher-risk products and services

Some sectors are perceived as higher risk than others and some firms within those sectors will hold higher ratings than others

FCA supervision

Firms are required to base their business models and culture on a foundation of the consistent fair treatment of customers. This approach requires a more flexible focus on bigger issues arising either in individual firms or across entire markets. Some firms may therefore have intensive supervisory contact while others may only be contacted every few years.

This approach requires a more flexible focus on bigger issues as they emerge, either in individual firms or across sectors. Larger-risk firms might have an assigned supervisor with highly intensive contact, while others might only be contacted once every three or four years.

Risk framework – the FCA’s three-pillar supervision model

The FCA’s supervision work is based around three pillars of activity, which are based on continuous analysis of the industry by sector and the risk within them:

1. Proactive firm/group supervision .

This is designed to assess a firm’s conduct risk, asking the question: ‘are the interests of customers and market integrity at the heart of how the firm is run?’ It entails analysing the firm’s business model, and how the fair treatment of customers has been embedded into governance and culture, product design, the sa...

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...ill check the firm's compliance systems to ensure that they are adequate and must be given access to all documentation they request. The areas typically checked are:

Business operations

Senior management and business culture

Permission for all activities

Effectiveness of the compliance department

The ‘fair treatment of customers’

Record keeping

Financial promotions

Complaints systems

Personnel matters

Appointment procedures for Appointed Representatives and employees

Procedures for certification

Procedures for individual registrations for controlled functions

Competence of advisers

Control of inducements

Training and competence systems

Conduct rules training

Customer matters

Giving customers client agreements

Suitability of recommendations made to customers

Suitability reports

Key Features production

Post-sales confirmations

Projection calculations

Production of cancellation notices

Client money systems

Anti-money laundering procedures

At the end of the visit, the FCA will produce a report detailing any recommended actions, which must be actioned within the specified time limits.

Internal compliance monitoring

Each firm should have its own compliance monitoring procedures. A firm’s compliance officer is primarily responsible for all elements of FSMA compliance and should be a director or senior manager (it is an SMF16 role). In larger firms, there is likely to be a compliance department to assist with the monitoring work.

Most firms are required to have a senior manager hold the Compliance Oversight function, although this is currently not required for mortgage and insurance intermediary business.

The compliance department should maintain a regular check on all the procedures and systems likely to be monitored so that there are no surprises at an FCA visit. The department may also act as checkers of advertising promotions, fact-finds, suitability letters and training. It may also carry out monitoring visits on branches, appointed representatives and advisers.

Failure to monitor compliance adequately could lead to disciplinary action by the FCA, unwelcome publicity and/or a decline in business.

In their risk-based approach for authorised firms, explain what is meant by the terms ‘probability’ and ‘impact’.

Answer: In the risk assessment, probability assesses the likelihood of a major failing and impact assesses the possible impact of that failing on the FCA’s regulatory objectives.

The PRA was formed on 1 April 2013 to have responsibility for the regulation of banks, building societies, credit unions, insurers and major investment firms. Through its supervision...

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...ll be supervised on a portfolio basis with only occasional individual examination, whereas large complex organisations will be subject to detailed supervision at an individual level.

The Financial Stability Board (FSB) is an international body that monitors and makes decisions about the global financial system. It comprises senior representatives of national financial authorities – central banks, regulatory and supervisory authorities and ministers of finance - international financial institutions, standard setting bodies and committees of central bank experts. The UK regulatory authorities are all represented as members.

Financial stability - international

The mandate of the FSB is to:

Assess vulnerabilities affecting the financial system and identify and oversee action needed to address them

Promote co-ordination and information exchange among authorities responsible for financial stability

Monitor and advise on market developments and their implications for regulatory practice

Advise on and monitor best practice in meeting regulatory standards

Undertake joint strategic reviews of the policy development work of the international standard setting bodies to ensure their work is timely, co-ordinated, focused on priorities and addressing gaps

Set guidelines for and support the establishment of supervisory colleges

Manage contingency planning for cross border ...

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...cial strength of regulated firms

The regulators monitor the financial strength of:

Banks

Building societies

Friendly societies

Insurance companies

Fund managers

If the financial strength of any of these fell below the minimum standard, they would be prevented from accepting any new business. These organisations must make the information regarding their financial strength available for public scrutiny through their accounts and reports.

An important measure in the strength of a life office is the ‘ free asset ratio (FAR) ’.

The free asset ratio is the surplus assets held by the life office over the value of its liabilities, expressed as a percentage of the total assets:

FAR = (Total Assets – Liabilities)/Total Assets  x 100

This factor is often considered by independent advisers when selecting a specific office to provide a product for clients.

Various institutions exist which give ratings to financial institutions. These ratings are publicly available, but their reliability has been called into question following the recent financial crisis.

What are firms required to do in relation to their financial resources?

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The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are the key organisations responsible...

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...sk-based approach

Senior Managers and Certification Regime (SM&CR)

Upper Tribunal (Tax and Chancery Chamber)

Following the Financial Services Act 2012, the Financial Services Authority (FSA) was abolished in 2013 and the following regulatory bodies were established.

1. Prudential Regulation Authority (PRA)

Promotes the safety and soundness of systemically important firms, including...

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...system

Promote effective competition in the interests of consumers

Secondary objective (added in 2023):

Facilitate the international competitiveness and growth of the UK economy

Approach:

Proactive regulation

Takes action early before consumer detriment occurs

The PRA is part of the Bank of England.

Responsible for:

Authorisation of banks, building societies, credit unions, insurers and major investment firms

Prudential regulation

Prudential supervision

Setting standards for individual firms

Supervising firms at the individual firm level

Governed by:

Prudential Regulation Committee (PRC)

Primary objectives:

Promote the safety and soundness of regulated firms

Protect existing and potential insurance policyholders

Secondary objectives:

F...

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...e risks

Intervenes early where necessary

Risk-focused approach:

Concentrates on firms and issues posing the greatest risk to UK financial stability and policyholders

Prudential Regulation Committee (PRC):

Makes the PRA's most significant supervisory decisions

Includes:

Governor of the Bank of England

Deputy Governor for Financial Stability

Chief Executive Officer of the PRA (and Deputy Governor for Prudential Regulation)

Independent non-executive members

Accountable to Parliament

The PRA...

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...irms

Banking and insurance are international industries, so effective international cooperation is essential to the PRA's success.

The PRA aims to:

Be an influential participan...

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...oUs), to share confidential information

Participates in supervisory colleges for firms with significant UK operations

Organises and chairs supervisory colleges for UK firms

Prior to January 2020, international pol...

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...uropean institutions

EU regulators

The FPC is run by the Bank of England and is responsible for macro-prudential supervision.

Responsible for identifying:

Systemic risks attributable to structural features of...

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...o risk-weighted capital requirements where risk measures may be unreliable

The FPC also has a statutory obligation to:

Limit the impact of its policies on economic growth

The FPC has 13 members.

Chaired by:

Governor of the Bank of England

Members i...

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... breadth of expertise

Direct market expertise, including areas such as insurance

The Treasury can provide the FPC with guidance in the form of a remit alongside its statutory o...

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...scribe discussions in broad terms

Do not identify the contributions of individual members

The FCA aims to ensure business across financial services and markets is conducted in a way that advances the interests of:

Consumers

Market participan...

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...y action

Take formal action against misleading financial promotions

Disclose that it has taken formal action against misleading financial promotions

The Bank of England Act 1998 requires the Treasury, at least once in each Parliament, to make recommendations to the PRC about aspects of government economic policy that the PRC should consider when:

Advancing the PRA's objectives

Applying the regulatory principles in FSMA 2000

The PRC contributes to government economic policy by:

Promoting the safety and soundness of firms

Maintaining and ...

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...trade and inward investment

Boost productivity and economic growth

Promote competition

Maintain the UK's reputation as a good place to do business

Better outcomes for consumers:

Ensure financial services operate in the best interests of consumers and businesses

Improve competition in financial services

Secure an appropriate degree of consumer protection, including for policyholders

The FCA's objectives were established under FSMA 2000, as amended by the Financial Services Act 2012.

Strategic objective:

Ensure that the relevant markets function well

Regulatory principles

1. Efficiency and economy

Use resources in the most efficient and economical way

Treasury may commission value-for-money reviews of FCA operations

2. Proportionality

Regulatory burdens or restrictions should be proportionate to the expected benefits

FCA considers costs to fi...

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... to which the FCA has met its objectives

Parliamentary Committees may scrutinise how the FCA achieves its objectives

Governance of the FCA's general functions:

Govern rule-making

Govern the provision of advice and guidance

Govern the determination of general policy and principles

FCA must explain how draft rules relate to its objectives

Legal accountability:

FCA decisions may be challenged by judicial review if it misinterprets or fails to consider its objectives

The FCA's consumer protection objective is to:

Secure an appropriate degree of protection for consumers

Protect consumers from actual or potential detriment

Protect and enhance confidence in retail markets

The FCA aims to:

Intervene early in retail markets before consumers suffer harm

Foc...

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...rinciple providing an overarching standard of conduct

Cross-cutting rules supporting the Consumer Principle

Outcomes supporting the Consumer Principle

The Consumer Duty aims to:

Give firms greater certainty about regulatory expectations

Clarify the standards consumers should expect from firms

The FCA does not have explicit responsibility for financial stability.

Responsibility for financial stability lies with:

Bank of England

Financial Policy Committee (FP...

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...rvision of market infrastructure institutions, which:

Deliver capital transfer mechanisms

Deliver risk transfer mechanisms

Create confidence in the financial system

The FCA seeks to promote competitive retail and wholesale markets where consumers can make informed choices about products and services.

The FCA recognises that informed consumer choice may be limited by:

Structural market features

Consumer behaviours

Consumer biases that firms can exploit

...

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...Authority (CMA)

The CMA:

Shares competition powers with the FCA for financial services and other sectors

Acts as a concurrent regulator with the FCA for financial services

These competition powers are additional to:

The FCA's powers under FSMA used to pursue its competition objective

The FCA's secondary objective is to:

Facilitate the international competitiveness and growth of the UK economy in the medi...

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...t firms

Makes the UK a more attractive place to do business

Supports the international competitiveness of the UK economy

Scope

Any business or individual carrying on one or more regulated activities by way of business must:

Apply for authorisation from the relevant regulator

Obtain Part 4A permission under FSMA

Exceptions:

Persons meeting the terms of an exclusion

Exempt persons

The PRA authorises:

Deposit-taking institutions

Insurers accepting insurance contracts

The FCA authorises:

Smaller firms

Investment advisers

Firms selling investments

Home...

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...erseas investment exchanges (e.g. NASDAQ)

Recognised clearing houses and settlement systems (e.g. CREST)

Designated professional bodies (e.g. Law Society and the Institute of Chartered Accountants in England and Wales)

Policing the financial services system.

This includes:

Stopping firms and individuals carrying on unauthorised investment business

Preventing certain individuals from being employed by, or becoming representatives of, authorised firms

The FCA oversees most of the financial services industry and has extensive regulatory powers.

The FCA has a policing role and can:

Investigate unauthorised businesses operating illegally

Shut down unauthorised businesses

Bring criminal prosecutions against those responsible

Examples include:

Unauthorised investment advisers

Some financial services fall outside the FCA's scope, including:

Occupational pension schemes

Buy-to-let property clubs

The FCA is accountable to:

The Treasury for the way it carries out it...

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... includes matters relating to:

Listing authority functions

Short selling powers

Regulation of recognised investment exchanges

Financial Services Consumer Panel (FSCP)

An independent statutory body representing the interests of:

Consumers

Provides:

Advice

Comments

Recommendations on FCA policies and practices

Reviews, monitors and reports on:

The effectiveness of FCA policies and practices

Panel members:

Are recruited through open competition

Reflect a broad range of relevant expertise and experience

The FCA's Enforcement Division investigates:

Breaches of FCA rules

Breaches of FSMA

Under FSMA, the FCA can:

Withdraw a firm's authorisation

Discipline authorised firms and FCA-approved individuals

Require skilled persons reports (section 166 reports)

Impose penalties for market abuse

Apply to the court for injunctions and restitution orders

Prosecute various offences

Skilled persons review

The FCA may appoint a...

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...Rights Act 1998

Regulatory Decisions Committee (RDC)

Enforcement staff:

Prepare and recommend enforcement action

The RDC:

Considers enforcement cases

Decides cases that do not settle

Includes members from industry and consumer backgrounds

Settlement:

Can occur at any stage

Is decided by two senior FCA staff members

Upper Tribunal (Tax and Chancery Chamber)

The Upper Tribunal:

Hears appeals against RDC decisions

The FCA has powers under FSMA to deal with misconduct by:

Regulated firms and individuals

Persons outside the regulated community in certain cases (e.g. market abuse)

The FCA can bring:

Civil proceedings

Criminal proceedings

Civil law

Civil law:

Defines the rights of parties in a transaction

Is enforced by the parties themselves

Usually provides remedies through damages (compensation)

Criminal law

Criminal law:

Protects public rights and safety

Is enforced by the State through prosecution

Can result in fines or imprisonment

Civil action

The FCA can bring civil proceedings in the High Court against:

Firms

Individuals

Persons outside the regulated community

Injunctions

The FCA can seek injunctions to:

Prevent unauthorised regulated activities

Prevent misleading statements breaching FSMA

Stop unlawful financial promotions

Prevent market abuse

Injunctions:

Are forward-looking

Prevent future b...

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...aundering

Under the Money Laundering Regulations, the FCA can:

Levy penalties on registered businesses

Prosecute officers of registered businesses for certain breaches

Penalties may include:

Up to two years' imprisonment

A fine

Both imprisonment and a fine

Proceeds of Crime Act 2002 (POCA)

It is an offence to:

Acquire criminal property

Possess criminal property

Use criminal property

Conceal criminal property

Disguise criminal property

Convert criminal property

Transfer criminal property

Remove criminal property

Assist another person to carry out these activities

Penalty:

Up to 14 years' imprisonment

Unlimited fine

Both

Failure to report

It is an offence to fail to report:

Knowledge or suspicion of money laundering

Reasonable grounds for suspecting money laundering

Reasonable grounds for suspecting terrorist financing

Penalty:

Up to five years' imprisonment

A fine

Both

The FCA's approach to regulation includes:

Product intervention and governance

The FCA aims to:...

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... FCA's competition objective is to:

Promote effective competition in the interests of consumers

Supervision is the FCA's day-to-day regulatory relationship with authorised firms.

It involves:

Monitoring firms

Regulating firms

Ensuring compliance with regulatory requirements

The FCA adopts a:

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... appropriate regulatory response

The resources required to mitigate the risk

Where the FCA identifies a risk of harm to consumers or markets, it may invite a firm to:

Voluntarily stop accepting new business until the issue is resolved

The FCA supervises firms by grouping them into portfolios based on similar business models.

Historically, firms were categorised as:

Fixed portfolio firms

Flexible portfolio firms

Although the FCA Handbook removed thes...

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...ndles most queries and issues

Refers matters to the appropriate supervision area where necessary

The FCA aims to:

Move from a largely reactive approach to a more proactive supervisory approach in line with its strategy

The FCA's approach to supervision is based on the following principles.

Forward-looking

The FCA aims to:

Prevent poor conduct before harm occurs

Assess firms' business models and strategies against current and emerging risks

Reduce or prevent those risks from materialising

Outcomes-focused

The FCA aims to:

Identify systematic harms early

Act quickly to prevent harm

Address the underlying causes of harmful culture and business practices

Where appropriate, the FCA may:

Refer matters for investigation

Implement redress schemes

Engage directly with firms

Work with the Financial Ombudsman Service (FOS)

Proportionate and evidence-led

The FCA:

Focuses on key drivers of conduct likely to cause harm

Gives greater attention to firms posing the greatest risk to its objectives

Transp...

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...>Takes enforcement action against mis-selling

Pursues tougher penalties where appropriate

Is increasingly willing to pursue senior management

The FCA and PRA may:

Publish that a warning notice has been issued

Publish a summary of the warning notice

Before publication, the regulator must consider:

Whether publication would be unfair to the person concerned

The Government may:

Repeal the early warning notice power if its use is considered contrary to the public interest

Market intelligence gathering and research

The FCA gathers information through:

Regulatory questionnaires

Surveys

Requests for client and business data

Skilled person (section 166) reviews

The FCA increasingly uses technology, including:

Web scraping

Social media tools

AI to detect, review and triage potential scams

Thematic review – Consumer harm (2021)

The FCA found:

Many serious harms lie outside its regulatory perimeter (e.g. overseas online scams)

Consumers, particularly vulnerable consumers, are less likely to:

Understand the risks of products

Understand the nature of products

Know what to do when things go wrong

The review influenced:

FCA guidance on the fair treatment of vulnerable customers

Consumer Duty

Thematic review – Debt management (2019)

The FCA assessed whether firms...

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... (decumulation)

Determine whether customers receive appropriate advice when accessing pension savings

Identify future areas of regulatory focus

The FCA identified improvements were needed in:

Income withdrawal strategy and methodology

Risk profiling

Advice suitability

Periodic review of advice suitability

Controls

The FCA highlighted:

Weaknesses in some firms' use of cash flow models to demonstrate suitability

Insufficient evidence to support the suitability of recommendations

Authorisation

When authorising a firm, the FCA assesses whether:

It meets the minimum standards for authorised firms

It continues to meet the Threshold Conditions

The FCA considers:

Nature, scale and complexity of the regulated activities

Adequacy of resources

Suitability of individuals

Proposed business model

Governance

Culture

The FCA also assesses proposed systems and controls for:

Risk management

Product governance

...

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...

Market practitioners

The FCA:

Uses consultation during the rule-making process

Seeks feedback on proposals, including from consumers and their representatives

Publishes information on:

Market trends

Products and services

Firms' comparative performance

The FCA recognises:

Legal restrictions on disclosure under UK and EU law

The FCA will not disclose information where:

Disclosure would be incompatible with its objectives

The FCA is responsible for the prudential regulation of over 18,000 firms, including:

Asset managers

Financial advisers

Mortgage brokers

Insurance brokers

The FCA does not prudentially regulate:

Banks

Building societies

Credit unions

Insurers

Large investment firms

Firms must:

Meet general solvency requirements <...

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...ential redress liabilities (e.g. complaints)

Maintain appropriate run-off indemnity insurance when closing

Set aside capital or ring-fence assets for potential liabilities where appropriate

The FCA also highlighted the importance of:

Comprehensive risk assessments of advice

Robust file reviews

Reviews of ongoing advice provided

The FCA monitors compliance to:

Ensure firms comply with regulatory requirements

Identify non-compliance

Discipline firms and individuals who fail to comply

The FCA operates as both:

A reactive regulator

A proactive regulator

Reactive regulation

The FCA receives regular information from regulated firms, including:

Accounts and auditor statements

Business volumes

Sources of business

Complaints statistics

Where concerns arise, the FCA may:

Open an investigation

Take disciplinary a...

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... procedures

Following an inspection:

The FCA prepares a report identifying any remedial work required

Firms must complete remedial action within the specified timescales

The FCA may also:

Conduct mystery shopping exercises

Visit premises without notice

Question staff

Obtain a warrant to enter and search premises

Seize documents where necessary

Where appropriate, the FCA may:

Take disciplinary action against firms or individuals

Publicise disciplinary action to deter similar misconduct

Each authorised firm should have its own compliance monitoring procedures to:

Prevent or reduce accidental rule breaches

Minimise problems during FCA inspection visits

The compliance officer:

Is ...

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...o:

Branches

Appointed representatives (ARs)

Individual advisers

Failure to monitor compliance adequately may result in:

FCA disciplinary action

Unwelcome publicity

Decline in business

The PRA became responsible for the prudential regulation of:

Banks

Building societies

Credit unions

Insurers

Major investment firms

The PRA aims to:

Develop a rounded, robust and comprehensive view of firms

Assess whether firms are run safely and soundly

Ensure insurers prot...

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...lective impact:

Are supervised on a portfolio basis

Are examined individually only occasionally (e.g. when a risk crystallises)

Examples include:

Small credit unions

Small insurers

Large, complex firms:

Receive detailed individual supervision

Have a named supervisory contact

Financial Stability Board (FSB)

The FSB promotes international financial stability by:

Coordinating national financial authorities

Coordinating international standard-setting bodies

Developing strong regulatory, supervisory and financial sector policies

Encouraging consistent implementation of policies across sectors and jurisdi...

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...sing, where appropriate, IMF/World Bank Financial Sector Assessment Program (FSAP) reports

The FSB also seeks to:

Promote a coordinated international agenda for strengthening financial systems

Improve the stability of international financial markets

The necessary regulatory changes are implemented by national financial authorities.

A stable financial system is essential for:

A healthy and successful economy

Public confidence in the financial system

The continued provision of critical financial services

Preventing problems in one area spreading across the financial system

The Bank of England has a statutory objective to:

Protect and enhance the stability of the UK's financial system

The Bank achi...

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...

Ensure markets function well

The FCA is required to cooperate with:

HM Treasury

Bank of England

Other relevant bodies

Following post-financial crisis reforms:

Primary responsibility for financial stability rests with the Bank of England

The FPC and PRA support the Bank of England

The FCA contributes through coordination, information sharing and market supervision

A firm's financial resources are assessed in relation to:

All of its business activities

The risks arising...

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...General rules on the establishment of systems and controls

Guidance on the maintenance of systems and controls

Principle 4

Principle 4 requires a firm to:

Maintain adequate financial resources

The FCA (and PRA where applicable) assesses whether a firm has sufficient financial resources to:

Meet its liabilities as they fall due

Financial resources in...

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...re significant changes in future expectations occur

A firm does not need to:

Measure its precise capital resources every day

A firm must be able to:

Demonstrate the adequacy of its capital resources at any time if requested by its regulator

The regulators monitor the financial strength of:

Banks

Building societies

Friendly societies

Insurance companies

Fund managers

If financial strength falls below minimum standards, regulators may:

Prevent firms from accepting new business

Regulatory monitoring:

Does...

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...100

The FAR can be obtained from:

A life office's regulatory returns

Ratings

Ratings agencies:

Assess the financial strength of financial institutions

Publish their ratings

Ratings are used by:

Advisers when selecting providers

Providers in marketing material