Checklist
This checklist outlines the regulatory structure for financial markets in the United Kingdom.
Definition
All financial services and markets within the jurisdiction of the United Kingdom are regulated by the Financial Services Authority (FSA), an independent, nongovernmental, quasi-judicial body. In its role as the competent authority for the listing of stocks on a stock exchange, it is known as the UK Listing Authority (UKLA), and maintains the Official List of securities traded on UK regulated markets as defined in the Investment Services Directive.
The UK financial services industry was entirely self-regulating, and regulatory powers were spread across a large number of bodies, until 1985, when the Securities and Investments Board Ltd (SIB) was incorporated and given certain statutory regulatory powers under the Financial Services Act 1986. Following the collapse of Barings Bank, self-regulation was ended and regulatory responsibilities were consolidated within the SIB. The SIB became the FSA in 1997, and now exercises statutory powers legislated in the Financial Services and Markets Act 2000.
The FSA currently has responsibility for regulating banks, insurance companies and financial advisers, and mortgage business and general insurance brokers. The FSA has four statutory objectives as defined by the Financial Services and Markets Act:
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market confidence: to maintain confidence in the financial system;
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public awareness: to promote public understanding of the financial system;
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consumer protection: to secure the appropriate degree of protection for consumers;
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reduction of financial crime: to limit the possibilities to commit financial crime by regulated persons.
The FSA’s statutory objectives are backed up by a number of regulatory principles, which it must follow when carrying out its duties. These are:
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efficiency and economy: using its resources in the most efficient and economic manner;
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role of management: this principle aims to prevent the FSA intruding unnecessarily into a company’s business. The FSA holds a company’s senior management responsible for its activities, and for ensuring that it complies with regulatory requirements. A company must, therefore, have sufficient risk management controls in place, have designated lines of responsibility, and ensure its business can be adequately monitored and controlled;
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proportionality: any restrictions the FSA imposes on the industry must be in proportion to the benefits that are expected to result, and the FSA must consider the costs to companies and consumers. This applies to the different regulatory requirements for both the wholesale and the retail markets;
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innovation: the FSA aims to facilitate innovation in regulated activities, such as permitting different ways of compliance so that market participants do not face too many restrictions when launching new financial products and services.
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international character: the FSA aims to maintain the United Kingdom’s competitive position by monitoring the international financial services industry and cooperating with overseas regulators, for the purpose of agreeing international standards.
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competition: the FSA strives to minimize any adverse effects on competition arising from its activities and to facilitate competition within the United Kingdom’s financial sector. This includes reducing regulatory barriers to entry or business expansion. The FSA’s rules and practices on competition are monitored by HM Treasury, the Office of Fair Trading, and the Competition Commission within the framework of the Financial Services and Markets Act.
The FSA is accountable to Treasury ministers, and thence to Parliament. It is funded entirely by the companies it regulates through a mix of fines, fees, and compulsory levies. The Treasury appoints all the FSA’s board members, and sets out the scope of activities that should be regulated. The board decides on the shape of the regulatory regime and determines overall policy. Day-to-day decisions are the responsibility of the executive, which is divided into three sections—retail markets, wholesale and institutional markets, and regulatory services—each headed by a managing director.
The Financial Services and Markets Tribunal is an independent judicial body that has responsibility for handling appeals against the FSA’s regulatory decisions.
See Also
Best PracticeChecklists
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