In April 2013 the Financial Conduct Authority (the FCA) will replace the FSA as the regulatory body responsible for overseeing conduct in retail and wholesale financial markets. Ahead of the transition, the FCA Chief Executive-Designate Martin Wheatley has been setting out the aims and objectives of the FCA. In a speech on 16 October 2012, Mr Wheatley launched the 'Journey to the FCA', a publication designed to set out the aims and objectives of the new FCA.
The Financial Services Bill 2012 (the "Bill"), which is currently under scrutiny by Parliament, outlines the statutory objective of the FCA to ensure that relevant markets 'work well'. Underpinning that objective will be three 'operational objectives', which are explained in the Journey to the FCA document.
- Ensuring consumers get financial services and products that meet their needs from firms they can trust
The Bill will give the FCA product governance powers to help ensure that the products firms offer meet the needs of consumers. Provider firms will be expected to have robust procedures to assess their target market, perform adequate stress testing, and manage the product risks for consumers. The FCA will have a mandate to ban products that pose unacceptable risks to consumers, subject to a consultation process (except in cases where there is a need for prompt intervention, in which case the ban can last for up to 12 months before a consultation is required).
- Ensuring firms compete effectively, with the interests of their customers at the heart of how they run their business
It is hoped that greater competition will improve efficiency and innovation, and act as a brake on charging. To promote competition, the FCA will aim to bring about markets where there are no undue barriers to entry, and no firm (or small group of firms) dominates the market so as to limit opportunities to competitors.
- Ensuring market integrity
The FCA will regulate all categories of relationship, including those involving sophisticated clients (who arguably have sufficient expertise to look after their own interests). This is because poor conduct can have a wider impact on trust in the integrity of the markets beyond the parties invested in any particular transaction. The FCA will also have a renewed focus on risks caused by wholesale activities, in order to prevent those risks passing into the retail market.
Working with the PRA
Under the post-FSA regulatory structure, the FCA will act alongside the Prudential Regulation Authority (the PRA). To aid co-operation and co-ordination between the organisations, Andrew Bailey, the Deputy Chief Executive-Designate of the PRA, will sit on the board of the FCA, and Martin Wheatley will sit on the board of the PRA. In a recent speech Tracey McDermott, Director of Enforcement and Financial Crime for the FSA and the new FCA, confirmed that countering financial crime is not part of the PRA's remit, although it will have to bear such issues in mind, given that financial crime is a significant source of operational and reputational risk.
Mr Wheatley has also stated the importance of the FCA's relationship with Europe, and said that part of its role will therefore be to influence EU conduct regulation for the benefit of UK firms.
Proactive involvement with firms and consumers
Ms McDermott also explained that the FCA intends to be more proactive than the FSA is currently in engaging with consumers and firms. This will involve holding roundtables, meetings and inviting comment and feedback on proposals. She stated "This higher level of engagement will, we intend, be one of the hallmarks of the FCA".
Key areas of focus for the FCA
Ms McDermott highlighted a number of key areas of focus for the FCA, including anti-money laundering and investment fraud. The FCA will also continue the current thematic work of the FSA in the area of anti-bribery and corruption system and controls. Market abuse remains a key theme.
Fines levied by the FSA/FCA will now be collected by the Treasury and not used to reduce annual fees
Previously, the proceeds of an FSA fine would be used to cover the cost of the enforcement action, and the balance used to reduce future levies for all members by an equal amount.
It has now been confirmed that whilst the regulator will continue to retain a portion of the fine to cover enforcement costs, anything in excess of that amount will be collected by the Treasury. The new arrangements will apply to all future fines imposed by the FCA, the PRA and the Bank of England (when exercising regulatory powers).
The changes will have retrospective effect, covering any fines levied by the FSA since 1 April 2012, and the Government has also announced that £35 million of fines (the total levied since 1 April 2012 once enforcement costs are taken into account) will be donated to the Armed Forces Covenant Reference Group to support the armed services, veterans and their families. The Treasury has not yet made a decision on what will happen to the proceeds of any fines for the remainder of the year. However, in the long term the fines will go directly to the Exchequer.