In the finance industry, there was once a company responsible for ensuring compliance solutions with the UK. This was the Financial Services Authority, and it ran from 2001 until 2013. However, it was appointed by the Treasury, although it operated free of the UK Government.
However, the financial crisis of 2008 caused the UK Government to consider a restructuring of the financial regulation. This was due to a perceived failure of the banks and so, with a royal assent from the Queen, the Financial Services Act of 2012 abolished the FSA and as of the 1st of April the Financial Services Authority was no more.
But there still needed to be a structure in place to assure that financial regulations were being adhered to, and to furthermore assure that a financial crash couldn’t happen again. We’re breaking down the role of the Financial Conduct Authority and its presence in the financial industry.
What is the role of the Financial Conduct Authority?
The Financial Conduct Authority is the UK’s most prominent financial regulatory body. It is independent of the UK Government, opting instead to make its money from members of the financial service industry with fees.
The Financial Conduct Authority made a number of initial changes to the structure of financial regulations and has evolved over the years. In particular, it brought together macro and micro prudential regulation, and gives responsibility for financial stability to the Bank of England by combining its Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority into one new regulatory structure.
As technology advanced to not only reduce but improve security in finances, the Financial Conduct Authority implemented new, stronger customer authentication rules to avoid cybercrimes, including PIN codes and passwords, biometrics, like a fingerprint, and a digital device such as a smartphone to make online payments.
The Financial Conduct Authority also has more significant powers, which includes the power of regulating conduct of marketing and financial products, placing requirements on products, to set minimum standards, and investigating firms and individuals.
What is the legislation that created the Financial Conduct Authority?
To assure compliance across financial firms, laws needed to be drafted that would then be enforced by the Financial Conduct Authority in the UK. This is the work of the Financial Services and Markets Act of 2000, which was altered and improved upon in order to act as the backbone of the Financial Conduct Authority.
Its long title outlines that the act is designed to regulate financial markets and service, provide means to transfer statutory functions within organisations like building societies, friendly societies, industrial and provident societies etc.
Considering the role of the Financial Conduct Authority is to improve upon the structural circumstances that created the 2008 financial crisis, it makes sense that the key purposes of the law are to improve market confidence, financial stability, public awareness, the protection of consumers, and the reduction of financial crime.
Why does this matter?
The Financial Conduct Authority is the governing body when it comes to compliance. By understanding the history and the legislation behind it, the authority can be better imposed, either by the Financial Conduct Authority itself through creating and enforcing regulation, or by businesses that have to adhere to the authority of the Financial Conduct Authority and need to know how to avoid negative consequences from not adhering to regulation.
And there are a lot of them. The Financial Conduct Authority is currently responsible for 58,000 businesses and the employ of 2.2 million people across the United Kingdom. It’s important that compliance is enforced in the financial industry to protect customers, businesses, jobs and the economy at large.