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Financial Services Regulation

The financial sector is a key driver of the UK economy, with financial service firms coming under intense scrutiny from policy-makers, regulators and the media in equal measure. Regulation by the Financial Conduct Authority is increasingly complex, placing a range of restrictions and demands within which financial services providers are allowed to operate.

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Financial Services Regulation Services

The financial sector is a key driver of the UK economy, with financial service firms coming under intense scrutiny from policy-makers, regulators and the media in equal measure. Regulation by the Financial Conduct Authority is increasingly complex, placing a range of restrictions and demands within which financial services providers are allowed to operate.

These rules are constantly changing, creating a moving set of criteria, expectations and demands which companies need to adapt to. The sector is vast and diverse, with different areas such as fintech, pensions, fund and asset management having their own regulatory framework

The role of administering the sector falls largely to the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) along with the Competition and Markets Authority (CMA) and the Pensions Regulator (TPR), all of which have statutory remits that extend to conduct and authorisation. Over recent years, each of these three regulatory bodies has demonstrated an increased appetite for enforcement

What is the Financial Conduct Authority (FCA)?

The Financial Conduct Authority (FCA) is the principal regulator for financial services in the UK. It has been specifically tasked to police the conduct of financial service firms and individuals working in the financial services sector. It is also the prudential regulator for all firms apart from banks, building societies, credit unions, insurers, and large investment firms. These are authorised by the Prudential Regulation Authority (PRA) and are regulated by the PRA and the FCA. Prudential regulation ensures that financial services firms have sufficient resources to meet liabilities, at all times.

The Financial Conduct Authority (FCA) is charged with creating a stable and transparent environment for consumers, while promoting meaningful and healthy competition between companies. The FCA is responsible for the fair and efficient operation of the UK’s financial markets.

The Financial Conduct Authority has been granted substantial powers by the government to enforce its mandate, make rules and investigate companies. As an independent body, it does not receive any government funding, but instead has the power to raise fees. The FCA charges fees to firms that are authorised to carry out activities that it regulates, as well as other bodies such as recognised investment exchanges. The authority regulates the conduct of over 59,000 financial services firms and financial markets in the United Kingdom.

Its roles include the regulation of both corporate and individual conduct, as well as the authorising of financial services firms that wish to carry out regulated activity

Its remit can be divided into three broad categories of responsibility. These are:

Authorisation

Firms and individuals must be authorised by the Financial Conduct Authority (FCA) to carry out regulated financial service activities and offer credit to consumers. Regulated financial activities are those set out in the Financial Services & Markets Act 2000 (FSMA 2000), The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) (which includes prohibitions on arranging and introducing unless exempt) and as related to credit agreements under the Consumer Credit Act 1974  (CCA) : this is sometimes referred to as the ‘perimeter’ or ‘regulatory perimeter’ . Any firm, whether a business, not-for-profit or a sole trader, carrying out a regulated activity must be authorised or registered by the FCA, unless they are exempt.

The application process can take anywhere between 6-12 months to complete and will be assessed on a variety of criteria. Firms are required to be ready, willing, and able to comply with FCA rules and requirements, at all times.

Conduct

The FCA monitors the conduct of firms within the industry. It sets out a range of rules that govern conduct, both for the firms themselves and for people within the firm with differing degrees of authority. It requires firms to act with integrity, show due skill, care, and diligence, co-operate with the FCA, the PRA and other regulators, pay due regard to the interest of customers, as well as observe proper standards of market conduct.

Enforcement

The Financial Conduct Authority and Prudential Regulation Authority have a range of powers to enable them to enforce their rules. These include the right to impose a penalty on a firm or person, and to make a public statement. It has the power to investigate, take disciplinary action and start criminal proceedings. The powers are used to deter people from breaching FCA rules, and there has been an increased use of higher penalties over recent years. The FCA has been keen to demonstrate its authority over the financial services sector.

Is crypto-currency (‘crypto-assets’) and/or crypto related activity regulated by Financial Conduct Authority in the UK?

Crypto-currencies and crypto related activity are something of a grey area when it comes to regulation in the UK. Both the FCA and the PRA have guidelines for the use of crypto-currencies, but these are vague and are not comprehensive, with changes happening in a piecemeal fashion.

In January 2020, new regulatory powers were introduced to enable the FCA supervise how crypto-asset businesses (i.e. exchanges) manage the risk of money laundering and counter-terrorist financing. As a result, all UK crypto-asset businesses must comply with the Money Laundering Regulations (MLR) and  had to register with the FCA by 15 December 2020 to be eligible for the Temporary Registration Regime. Any crypto-asset business that did not register had to stop trading by 10 January 2021 and returned any crypto-assets to its clients. It is currently unclear how effective these regulations are likely to be in the dynamic and decentralised crypto-currency market. The UK government has taken further steps to brink crypto-asset businesses withing the scope of the FCA’s supervision/inside the regulatory perimeter, announcing a consultation on including bringing the promotion of crypto-assets within the scope of financial promotions legislation (i.e., FPO).

Prevention is better than a cure

How Richardson Lissack can help

Richardson Lissack is regularly instructed in the most complex financial services regulatory matters. In the past these have involved issues arising out of authorisation, conduct and enforcement.

We strive for excellence and can provide our clients with access to a team of diligent, experienced lawyers that can call upon past-experience in the enforcement division at the FCA from its ranks. We have considerable experience in successfully handling enforcement and non-enforcement enquiries by the FCA, CMA, and TPR.

Our lawyers are available to assist you and provide legal advice.

Contact London 020 3753 5352 or Manchester 0161 834 7284. Alternatively you can email info@richardsonlissack.co.uk

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