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Financial Services Authority
The Financial Services Authority ("FSA") is an independent non-governmental body,
The FSA's Chairman and CEO are
The FSA has the legal form of a company limited by guarantee (number 01920623). It was incorporated on 7 June 1985 under the name of The Securities and Investments Board Ltd (SIB) at the instigation of the UK
The SIB changed its name to the FSA on 28 October 1997 and now exercises statutory powers given to it by the
The Financial Services and Markets Act imposed four statutory objectives upon the FSA:
* market confidence: maintaining confidence in the financial system
* public awareness: promoting public understanding of the financial system;
* consumer protection: securing the appropriate degree of protection for consumers; and
* reduction of financial crime: reducing the extent to which it is possible for a business carried on by a regulated person to be used for a purpose connected with financial crime
The statutory objectives are supported by a set of principles of good regulation which the FSA must have regard to when discharging its functions. These are:
* efficiency and economy: the need to use its resources in the most efficient and economic way.
* role of management: a firm’s senior management is responsible for its activities and for ensuring that its business complies with regulatory requirements. This principle is designed to guard against unnecessary intrusion by the FSA into firms’ business and requires it to hold senior management responsible for risk management and controls within firms. Accordingly, firms must take reasonable care to make it clear who has what responsibility and to ensure that the affairs of the firm can be adequately monitored and controlled.
* proportionality: The restrictions the FSA imposes on the industry must be proportionate to the benefits that are expected to result from those restrictions. In making judgements in this area, the FSA takes into account the costs to firms and consumers. One of the main techniques they use is cost benefit analysis of proposed regulatory requirements. This approach is shown, in particular, in the different regulatory requirements applied to wholesale and retail markets.
* innovation: The desirability of facilitating innovation in connection with regulated activities. For example, allowing scope for different means of compliance so as not to unduly restrict market participants from launching new financial products and services.
* international character: Including the desirability of maintaining the competitive position of the UK. The FSA takes into account the international aspects of much financial business and the competitive position of the UK. This involves co-operating with overseas regulators, both to agree international standards and to monitor global firms and markets effectively.
* competition: The need to minimise the adverse effects on competition that may arise from the FSA's activities and the desirability of facilitating competition between the firms it regulates. This covers avoiding unnecessary regulatory barriers to entry or business expansion. Competition and innovation considerations play a key role in the FSA's cost-benefit analysis work. Under the Financial Services and Markets Act, the Treasury, the Office of Fair Trading and the Competition Commission all have a role to play in reviewing the impact of the FSA's rules and practices on competition.
Accountability and management
The FSA is accountable to Treasury Ministers, and through them to Parliament. It is operationally independent of Government and is funded entirely by the firms it regulates through fines, fees and compulsory levies. Its Board consists of a
Its regulatory decisions can be appealed to the
HM Treasury decides upon the scope of activities that should be regulated, but it is for the FSA to decide what shape the regulatory regime should take in relation to any particular activities.
The FSA is also provided with advice on the interests and concerns of consumers by the Financial Services Consumer Panel [ [http://www.fs-cp.org.uk/ct_our_work.html Financial Services Consumer Panel - Our work] ] . This panel describes itself as "An Independent Voice for Consumers of Financial Services". Members of the panel are appointed and can be dismissed by the FSA and emails to them are directed to FSA staff. The Financial Services Consumer Panel will not address individual consumer complaints.
The FSA has a priority of making retail markets for financial products and services work more effectively, and so help retail consumers to get a fair deal. Over several years, the FSA has developed work to raise levels of confidence and capability among consumers. Since 2004, this work is described as a national strategy [ [http://www.fsa.gov.uk/pubs/other/financial_capability_uk.pdf “Financial capability in the UK", Financial Services Authority, 2004, ISBN 1-84518-176-X] ] on building
The FSA board
The FSA is governed by a Board appointed by
* Hugh Stevenson - Non-executive FSA Board member, Chairman of the FSA Pension Plan Trustee Ltd
Activities that must be regulated by the FSA
Companies involved in any of the following activities must be regulated by the FSA.
• Effecting or carrying out contracts of
• Dealing in
• Arranging deals in
• Arranging regulated
• Assisting in the administration and performance of a contract of
• Establishing etc
• Establishing etc personal
• Establishing etc
•Lloyd's market activities• Entering into and administering a funeral plan • Entering into and administering a regulated mortgage contract • Entering into and administering a home reversion plan • Entering into and administering a home purchase plan
• Agreeing to do most of the above activities
Actions relating to the 2007/2008 credit crunch crisis
The FSA has been held by some observers to be weak and inactive in allowing irresponsible banking to precipitate the credit crunch which commenced in 2007, and which has involved the shrinking of the UK housing market, increasing unemployment (especially in the financial and building sectors), the public acquisition of Northern Rock in mid-February 2008, and the takeover of HBOS by Lloyds TSB. On the 18th of September 2008, the FSA announced a ban on
Criticism of the FSA
The FSA rarely takes on wider implication cases. For example, thousands of consumers have complained to the Financial Ombudsman Service about payment protection insurance and bank charges. However, despite determining that there was a problem in the selling of PPI [http://www.fsa.gov.uk/pages/library/communication/pr/2005/115.shtml FSA update on payment protection insurance (PPI)] [http://www.citizensadvice.org.uk/index/pressoffice/press_index/press-51104b.htm Case for OFT investigation into payment protection insurance now overwhelming, says Citizens Advice] [http://www.citizensadvice.org.uk/index/pressoffice/press_index/press_20061019.htm Citizens Advice urges swifter action on PPI] , the FSA has taken effective action against very few firms in the case of PPI and it was the Office of Fair Trading (OFT) that finally took on the wider implications role in the case of bank charges. The FSA and the FOS have staff placed within their co-organisation in order to advise on wider implication issues. It is surprising, therefore, that so little action has taken place.
The FSA in an internal report in to the handling of the collapse in confidence of customers of the Northern Rock Building Society describe themselves as indequate [ [http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3628701.ece The FSA Northern Rock report: condemned in its own words, the regulator that missed the collapse]
The FSA was criticised in the final report of the European Parliament's inquiry in to the crisis of the Equitable Life Assurance Society. [ [http://www.europarl.europa.eu/comparl/tempcom/equi/report_en.pdf Final report of the European Parliament's inquiry in to the crisis of the Equitable Life Assurance Society]
The FSA ignored warning signals from Northern Rock building society and continued to allow the bank to operate without a risk mitigation programme for months before the bank's collapse. [ [http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3835360.ece?Submitted=true FSA allowed Northern Rock to keep breaking rules] ]
The FSA has been criticised by some within the IFA community for increasing fees charged to firms and for the perceived retroactive application of current standards to historic business practices.Fact|date=October 2007
FSA regulation is also often regarded as reactive rather than proactive.Fact|date=October 2007 In 2004-05 the FSA was actively involved in crackdowns against financial advice firms who were involved in the selling of split-cap investment trusts and precipice bonds, with some success in restoring public confidence.Fact|date=October 2007. However, despite heavily criticising split-cap investment trusts, in 2007 it suddenly abandoned it's investigation [ [http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article1821459.ece FSA ends split-cap scandal investigation with no scalps] ,
There have also been some questions raised about the competence of FSA staff. [ [http://www.economist.com/opinion/displaystory.cfm?story_id=3577231 Regulator, heal thyself] ,
The composition of the FSA board appears to consist mainly of representatives of the Financial Services industry and career civil servants. There are no representatives of consumer groups. As the FSA was created as a result of criticism of the self-regulating nature of the financial services industry, having an independent authority staffed mainly by members of the same industry could be perceived as not providing any further advantage to consumers.
Although, one of the prime responsibilities of the FSA is to protect consumers, The FSA has been active in trying to ensure company's anonymity when they have been involved in misselling activity, preferring to side with the companies that have been found guilty rather than consumers. [http://www.ico.gov.uk/upload/documents/decisionnotices/2007/fs_50075781.pdf Freedom of Information Act 2000 Decision Notice FS50075781] [http://www.ico.gov.uk/upload/documents/decisionnotices/2007/fs_50094595.pdf Freedom of Information Act 2000 Decision Notice FS50094595]
More Principles Based Regulation
There were suggestions that the FSA stifles the UK financial services industry through over-regulation, following a leaked letter from Prime Minister
The Prime Minister's criticisms were viewed as particularly surprising since the FSA's brand of light-touch financial regulation has typically been popular with banks and financial institutions in comparison with the more prescriptive rules-based regulation employed by the US
The FSA counters that its move away from rules-based regulation towards more principles-based regulation, far from weakening its consumer protection goals, can in fact strengthen them: "Our Principles are rules. We can take enforcement action on the basis of them; we have already done so; and we intend increasingly to do so where it is appropriate to do so." [ [http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2006/0724_cb.shtml Treating Customers Fairly and more principles based regulation] Clive Briault, Managing Director for Retail Markets, FSA, 24 July 2006] As an example, the enforcement action taken in late 2006 against firms mis-selling
The FSA has been attacked for its supposedly weak enforcement program. [ [http://www.ft.com/cms/s/0/b350b1aa-4bc0-11dd-a490-000077b07658.html 'London loophole' leaves US at odds with FSA] ] [ [http://money.guardian.co.uk/howtocomplain/story/0,,876917,00.html How can this still happen?] ,
For criticism of the slogan "principles-based" regulation, see [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=970646 Lawrence A. Cunningham, A Prescription to Retire the Rhetoric of 'Principles-Based Systems' in Corporate Law, Securities Regulation and Accounting (2007)] . For a comparative look at "principles-based" regulation in the United Kingdom and Canada, see [http://papers.ssrn.com/sol3/papers.cfm?abstract_id=970130 Cristie L. Ford, New Governance, Compliance, and Principles-Based Securities Regulation (2007)] .
* [http://www.fsa.gov.uk FSA website]
* [http://www.europarl.europa.eu/comparl/tempcom/equi/default_en.htm/ European Parliament Temporary Committee of Inquiry into the Crisis of the Equitable Life Assurance Society]
* [http://www.theherald.co.uk/news/news/display.var.2051312.0.northern_rock_to_be_nationalised.php The Herald: Northern Rock to be nationalised ("18/02/2008")]
* [http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/18/ccrocknat218.xml Telegraph: Nationalising Northern Rock is right ("18/02/2008")]
* [http://news.bbc.co.uk/1/hi/business/4696419.stm BBC News: City watchdog revises probe rules ("19/07/2005")]
* [http://news.bbc.co.uk/1/hi/business/4613661.stm BBC News: FSA under fire after Blair speech ("06/06/2005")]
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Category: Financial services