Seminar: The role of regulation in financial services

Topic Number: 8

Principles of Business

2

OverviewOver the years the UK financial services industry has had a series of serious regulatory breaches ranging from endowment mortgages and PPI to the credit crisis. Many commentators have blamed the lack of regulatory oversight as a contributory factor to the enduring economic recession.

In this seminar, we will look at the role of regulation in financial services, paying close attention to the newly formed regulatory body; the FCA.

We will consider the role of the FCA in financial regulation and look specifically at what enforcement powers it has. Thereafter, we will look at the key principles that it adopts in order guide further action.

Given, financial services operates in a global environment we will evaluate how the FCA operates on an international scale. Finally, we will critically evaluate the success of the FCA since its inception in 2013.

3

Learning outcomes of this seminar

• Describe the role of the FCA in regulating the financial services industry

• Determine and articulate the key principles that guide the FCA

• Evaluate and articulate how the FCA operate on an international scale

• Determine and describe the level of success the FCA has had since inception

Agenda for this seminar

What are the principles of good regulation?

How does the FCA operate internationally?

Evaluate the success of the FCA since inception

What is the role of the FCA in financial regulation?

Structure for the session

You will have 15 minutes to

discuss each question

We will have a de-brief at the end of each 15 minutes to hear your thoughts on each area

Feel free to ask questions but please do not have separate conversations ‘we are all in

this together’!

Introduction to the FCA

View video: https://www.youtube.com/watch?v=I8kXbEW7bPE

From FSA to FCA

In the wake of the financial crisis, the Financial Services Act of 2012 set out a new system for regulating financial services in order to protect and improve the UK’s economy.

Our purpose is to make sure markets work well so that consumers get a fair deal.

We maintain and ensure the integrity of the marketregulate financial services firms so that they give consumers a fair dealensure the financial services market is competitive

Source: FCA, 2014

Structure of the FCA

Source: FCA, 2014

What is the role of the FCA in financial

regulation?

What does the FCA do?

Source: FCA, 2014

What are their objectives?

Source: FCA, 2014

The FCA Remit

.

To ensure that the relevant markets function well.This responsibility has been set out for us by the Government,

according to the Financial Services Act 2012

To secure an appropriate degree of

protection for consumers

To protect and enhance the

integrity of the UK financial

system

To promote effective

competition in the interests of

consumers

To support this, they have three operational objectives:

Source: FCA, 2014

What are the principles of good

regulation?

8 Key Principles

Efficiency & Economy Proportionality

We need to use our resources in the most

efficient and economical way. As part of this the

Treasury can commission value-for-money reviews of

our operations.

We must ensure that any burden or restriction

that we impose on a person or activity is proportionate

to the benefits we expect as a result. To judge this, we

take into account the costs to firms and consumers.

Source: FCA, 2014

8 Key Principles

Sustainable growth Consumer responsibility

We must ensure there is a desire for sustainable

growth in the economy of the United Kingdom in the

medium or long term.

Consumers should take responsibility for their

decisions.

Source: FCA, 2014

8 Key Principles

Senior management responsibility

Recognising businesses carried out by different persons

A firm’s senior management is

responsible for the firm’s activities and for ensuring that its

business complies with regulatory requirements.

Where appropriate, we exercise our functions in a way that recognises

differences in the nature of, and objectives of, businesses

carried on by different persons subject to requirements

imposed by or under FSMA.

Source: FCA, 2014

8 Key Principles

Openness and disclosure Transparency

We should publish relevant market

information about regulated persons or

require them to publish it (with appropriate

safeguards).

We should exercise our functions as

transparently as possible. It is important that we

provide appropriate information on our

regulatory decisions, & that we are open &

accessible

Source: FCA, 2014

How does the FCA operate

internationally?

A globally coordinated effort

Bank for International Settlements

International Association of Insurance Supervisors

Financial Stability Board

International Organisation of Securities Commission

Source: FCA, 2014

Role of these bodies

These bodies aim to foster fair, efficient,

transparent and sound markets, by promoting

international co-operation and mutual

assistance, by developing the highest standards of regulation,

and by exchanging experience to help the

development of domestic markets.

They set international regulatory standards,

and promote the integrity of markets by

encouraging the implementation and enforcement of these

standards.

Source: FCA, 2014

EU Engagement

The FCA actively engages with the EU and devotes a significant share of its resources to working with European institutions and fellow EU regulators.

They do so because:

European Supervisory Authorities (ESAs) have significant powers to propose draft rules and to take decisions that are binding on national supervisors and firms.

Deepening the single market in financial services has involved a comprehensive legislative programme, which must then be implemented and applied in the UK.

The activities of cross-border firms require regulators to enhance their levels of co-operation and co-ordination, if regulatory duplication is to be avoided and risks are to be better identified, prioritised and mitigated.

Source: FCA, 2014

International Engagement and Assistance

As an international financial centre, the UK is host to a wide range of overseas firms and is home to financial markets that are highly integrated with the global economy. Many UK firms also have significant operations overseas. As a result, there is an important international dimension to our work.

The FCA is a signatory to the IOSCO and ESMA MoUs, and has entered into various other MoUs on a bilateral basis, which provide for international co-operation and the exchange of information.

Under the Financial Services and Markets Act 2000 (FSMA), the FCA has wide powers to compel the production of information, obtain documents and to require the attendance of persons at interviews. These powers may be exercised at the request of overseas regulators. The following will guide overseas regulators seeking the assistance of the FCA.

Source: FCA, 2014

Evaluate the success of the FCA thus far

Key Milestones of the FCA

Source: FCA, 2014

Milestones Achieved

Source: FCA, 2014

Building Integrity

Source: FCA, 2014

End of Seminar

Note: This recording is for your personal use only and not for further distribution or wider review.

© Pearson College 2013