It cannot have escaped anyone’s attention that the Financial Services Authority (FSA) ceases to exist as such on Monday 1 April 2013. In its place, will be two new regulators: the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). This OnPoint looks at the immediate impact on firms which will be regulated by the FCA.
The FSA has established a webpage on classification of firms by the FCA and has published FAQs on the transition to the FCA. It has also written to all FSA authorised firms, enclosing the FAQs and confirming the firm’s “conduct classification” and “prudential classification” (see below). The FCA also published a Policy Statement (PS13/5) on 25 March 2013, giving final Handbook rules.
The most important points arising from “legal cutover” on 1 April 2013 are as follows:
- The permission for firms regulated by the FSA will be automatically transferred to the FCA.
- Firms’ registration numbers will be carried across.
- The required disclosure in letters (and electronic equivalents) sent to retail clients for FCA authorised firms will be “Authorised and regulated by the Financial Conduct Authority” and for PRA authorised firms “Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority”. The names of Financial Conduct Authority and Prudential Regulation Authority may not be abbreviated to “FCA” or “PRA”. Firms operating on the basis of an EU passport must make a similar disclosure – see the FSA’s new GEN 2 Annex 1R for full details.
- Some firms currently use the FSA’s logo (under a general licence from the FSA). The FCA is discontinuing this practice. The FCA logo must not be used unless an individual licence has been granted.
- Firms will have 12 months from 1 April 2013 to make the changes on the required disclosure and to stop using the FSA logo.
- “In-flight” applications for authorisation, or variations of permission, will be transitioned to the new regulator.
- As of 1 April 2013, the FSA’s Handbook will be split between the FCA and PRA to form a Handbook for each regulator.
The “conduct classification” is based on the extent of supervision which the FCA thinks the firm requires and its number of retail customers. Firms will be assigned to one of four classifications, C1 – C4. C1 and C2 firms will have a dedicated supervisor at the FCA and will be subject to proactive supervisory engagement. C3 and C4 firms will be supervised by a team of sector specialists at the FCA and will not have a dedicated supervisor.
The “prudential classification” is only relevant to FCA authorised firms and is based on the firm’s client asset and client money holdings and the effect of the firm’s failure on the market. Again, there will be four classifications, P1 – P4, reflecting the extent of the FCA’s individual supervision of the firm. Firms which are not assigned a prudential classification will be dual regulated by the FCA and PRA.