What is the Financial Conduct Authority?

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The Financial Conduct Authority (commonly known as the FCA), is often cited when discussing financial services here in the UK to reassure us that our investment is safe and secure. 

But who actually are the FCA and what do they do?

I asked award-winning and FCA-regulated insurance broker Reassured to explore the role of the FCA

The FCA is an independent body that regulates the UK’s financial services sector.

Their primary purpose is to protect consumers and ensure that financial markets work well, fairly and competitively.

Established in 2013, the FCA regulates the conduct of 58,000 businesses and is the prudential supervisor of 49,000 businesses.

They work closely with the Prudential Regulation Authority (PRA) of which promotes the ‘safety and soundness’ of financial services.

Nearly all financial service activities must be authorised by the FCA while banks, building societies and mutual societies will also be regulated by the PRA.

What does the Financial Conduct Authority do?

The FCA govern all financial services activities that take place in the UK or that involve UK-based businesses.

This means regulating the conduct of approximately 60,000 businesses in the wholesale and retail markets.

They make sure that financial markets are fair and honest so that consumers can get a fair deal.

The FCA’s primary goal is to ‘make markets work well – for individuals, for business, large and small, and for the economy as a whole’.

The FCA regulate the industry by:

  • Authorisation
    Acting as a gateway to new businesses and individuals who want to enter the financial markets. Applicants that don’t meet the minimum standards of the FCA won’t be authorised by them and won’t be able to operate.
  • Supervision
    Supervising businesses to ensure they continue to uphold the minimum standards and identifying potential risks within regulated businesses to ensure measures are in place to prevent any harm to consumers and markets.
  • Enforcement
    Take enforcement action if a regulated business or individual isn’t complying with the rules, or if a business or individual is operating without authorisation or regulation of the FCA. The FCA can impose penalties, take court action, prohibit firms from operating, withdraw a firm’s authorisation, and issue warnings and alerts about the unauthorised firms and individuals.
  • Competition law
    Enforcing EU and UK competition law. The law forbids cartels and abuse of a dominant position (e.g. a business reducing their prices so low that they can remove competition and then increase their prices again).

What are the 4 main objectives of the FCA?

The FCA has 1 strategic objective (their primary goal) and 3 operational objectives (short-term goals).

Strategic objective:

  1. To ensure that the UK’s financial markets work well (so that consumers get a fair deal)

Operational objectives:

  1. Protect consumers – securing an appropriate degree of protection for consumers
  2. Protect financial markets – protect and enhance the integrity of the UK financial system
  3. Promote competition – promote effective competition in the interests of consumers and drive innovation within the industry

How does the FCA protect consumers?

The FCA has a responsibility to protect consumers from bad conduct in the financial services sector.

As most people in the UK are consumers of financial services, there must be a level of protection for them.

Therefore, the FCA act to ensure that authorised businesses:

  • Treat consumers fairly and have their best interests at heart
  • Provide consumers with information regarding appropriate products and services (allowing them to make decisions for themselves)
  • Prioritise consumer protection above their own profits or income

With the regulation of the FCA, consumers are able to compare the products and services available and then choose the option that’s best for them.

This in turn drives up the standards of businesses as they compete to win the business of consumers.

The Financial Conduct Authority (FCA) website provides consumers with all the information they need, including:

  • Types of scams and how to avoid or report them
  • How to report misleading financial promotions
  • How to make a complaint about the financial product or service
  • Which firms are authorised by the FCA (Financial Services Register)
  • What their rights are in terms of banking, insurance, mortgages and financial advice
  • Claiming compensation if a firm fails
  • Using claims management companies
  • Using payment service providers

What does it mean to be regulated by the FCA?

If a company or individual is regulated by the FCA, it means that they have met the minimum standards of the FCA.

The FCA checks business plans, risks, budgets, resources, systems, controls and key staff qualifications and skills before authorising or registering a business.

As mentioned, the FCA carefully observes the businesses and individuals that enter the financial markets and keep track of how they operate.

They have the power to shut down firms that aren’t upholding their standards (or carrying out regulated services without their authorisation).

Authorised firms must pay an annual fee and keep in touch with the FCA on a regular basis.

You can check if a business or individual is authorised or regulated by the FCA and/or PRA by looking on the Financial Services Register.

In summary

So there you have it; next time you open an ISA or take out health insurance and read “we are regulated by the Financial Conduct Authority” in the small print, you will have a greater understanding of what this means. 

Ultimately, the FCA exists to ensure that consumers are treated fairly, protection of financial markets and to encourage healthy competition

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