What is the Financial Conduct Authority (FCA) UK?
The Financial Conduct Authority (FCA) is an independent UK agency tasked with regulating financial services. It oversees the operations of over 58,000 financial firms. Its regulatory goals consist of consumer and investor protection, market integrity and market efficiency. The Financial Conduct Authority is a regulator responsible for the oversight of Electronic Money Institutions and Payment Institutions operating in the UK. Finally, the FCA is responsible for the AML/CTF registration of companies involved in certain crypto-activities.
How does the Financial Conduct Authority regulate?
In order to understand what tools the FCA uses to regulate, we must first understand its internal governance structure and its relationship with other regulatory bodies in the UK. Only then, the FCA’s authorisation, supervision, enforcement, and other regulatory tools can be fully comprehended.
The Governance Structure of the FCA
The FCA is the ongoing legal entity of the Financial Services Authority after its dissolution in 2013. Together with the Prudential Regulation Authority (PRA), they are responsible for prudential regulation. Therefore, they ought to coordinate and cooperate with each other. Besides prudential regulation, the FCA is also engaged in conduct regulation. While the PRA is accountable to the Bank of England as its subsidiary, the FCA is accountable directly to HM Treasury and the Parliament.
When it comes to financial stability functions, it is the Financial Policy Committee of the Bank of England that assigns responsibilities to both the FCA and the PRA.
Authorisation and registration by the FCA
Usually, to provide their services, firms and individuals must obtain authorisation. For some services, a procedure is slightly different in terms of complexity and requirements and it’s called registration.
Applicants need to meet a range of criteria so as to receive authorisation or to register with the FCA. In that regard, the FCA will review their business plans, risks, budgets, resources, systems, controls, and whether the key staff is sufficiently qualified and experienced to carry out its roles.
Supervision entails the oversight of firms and individuals controlling firms. Such oversight ensures that consumers and markets face minimal potential harm or no harm at all. In order to carry out supervision activities, the FCA follows certain principles of standard conduct.
Supervision creates certain confidence in the market and in the consumers that the financial services they are engaging in are adequate and fair. The FCA focuses on oversight of strategies and business models, governance, as well as accountability.
Enforcement powers of the FCA
The FCA’s enforcement powers scope includes civil, regulatory and criminal enforcement. Generally, the FCA enforces against regulated, unregulated firms, and individuals that fail to meet the standards of the FCA. As such, it can impose financial penalties, withdraw authorisation or suspend individuals from carrying out their functions.
The FCA has powers to enforce EU and UK competition law in the field of financial services and claims management. Nevertheless, the Competition and Markets Authority (CMA) also enforces these laws. It oversees competition issues throughout the entire economy, including the financial sector. As such, the FCA and the CMA concurrently exercise their powers on competition enforcement, sharing the aim of eliminating cartels, anticompetitive behaviour, and abuse of a dominant position.
Handbook and Guidance
Besides activities relating to the practices of specific firms and individuals, the FCA also maintains a Handbook which sets out the rules and guidance of the FCA under the FSMA 2000.
Within its role as the entity that authorises and supervises PIs and EMIs under the UK Payment Services Regulations 2017 and the Electronic Money Regulations 2011, the FCA has published the guidance “Our Approach“. This guidance briefly covers most of the regulatory framework and requirements applicable to EMIs and PIs.
Principles of good regulation
According to the FCA, the following represent the principles of good financial regulation:
- Efficiency and Economy
- Sustainable growth
- Consumer responsibility
- Senior management responsibility
- Recognising the differences in business between regulated firms
- Openness and disclosure
How does the FCA keep up with innovation?
The way in which the FCA engages with innovation is through initiatives such as a Regulatory Sandbox, a Direct Support Team, as well as an Advice Unit. Additionally, the FCA is piloting a Digital Sandbox.
The Regulatory Sandbox is accessible to authorised firms, unauthorised firms that need authorisation and tech businesses interested in bringing innovation to the UK financial services market. By becoming part of the Regulatory Sandbox, firms get the opportunity to gain from regulatory expertise as well as the tools that facilitate testing.
The Direct Support Team also known as the Innovation Hub Team, provides firms and individuals with a dedicated Advisor, that will assist them with their inquiries and concerns. On the other hand, the Advice Unit provides regulatory feedback to firms engaged in automated processes and models so as to provide lower-cost advice and guidance to consumers.
The Digital Sandbox aims to provide support to innovative firms suffering from the challenges of the coronavirus pandemic. Applications for this service have not yet been opened but are expected to open by the end of summer. It is reassuring to see how, despite the financial crisis affecting the entire economy, the FCA has managed to maintain its support for innovation in the Fintech industry.
So what is the Financial Conduct Authority? The FCA is core agency for authorisation of innovative financial services, as well as the core agency for support services that authorised firms and new entrants may need in their Fintech journey.
How can PSP Lab help?
If you are a firm or individual interested in providing services in the UK, that require an authorisation or registration from the FCA, PSP Lab can be of help. Our expertise covers Fintech consulting, business development, and software development. Should you have any questions regarding the FCA and its approach to regulation, please do not hesitate to contact us.