The Financial Conduct Authority (FCA) is the most powerful UK regulatory body that oversees the financial services sector. When a UK stockbroker or crowdfunding platform website states that it is ‘UK regulated’, it will mean that it falls within the regulatory net of the FCA.
Parliament and HM Treasury (the government department which oversees economic and financial policy), has steadily increased the powers of the FCA over the last 20 years.
In conjunction with the Bank of England (incorporating the Prudential Regulation Authority), the Payment Systems Regulator, and the Financial Ombudsman Service, the FCA regulates all financial firms.
An overview of how the FCA regulates firms
- Financial firms must be authorised and listed on the FCA register
- Firms must obtain specific permissions from the FCA for each type of financial activity they carry out
- Individuals employed in key roles in the firm must be vetted and deemed an ‘approved person’ by the FCA after passing the Fit and Proper test.
- Regulated firms must follow the protocols and rules set out in the FCA Handbook
Who does the FCA regulate?
The FCA regulates a list of activities under a permission-based system. By default, a firm cannot undertake a regulated activity without permission. This is known as the general prohibition.
Firms that participate in one or more of these activities are required to register with the FCA to apply for permission to carry out this activity and will be subject to its oversight. The number of activities a firm engages in, and the sector it belongs to will generally impact the ‘amount’ of rules the firm must comply with.
Firms that carry out regulated activities without registering with the FCA or being given explicit permission are in breach of the Financial Services and Markets Act (FSMA) 2000 and may be prosecuted under civil and criminal proceedings.
Key regulated activities include:
- Claims management activities, such as assisting a consumer making a personal injury claim
- Consumer lending activities, such as lending money, arranging finance, collecting debt and providing credit references
- Investment activities, such as providing financial advice, dealing in investments as an agent, operating a pension scheme, managing investments and client money.
- Insurance activities, such as providing insurance policies to consumers and acting as an agent
- Home finance activities, such as providing a mortgage, advising on mortgages
- Banking, although these activities are also overseen by the Prudential Regulation Authority.
How can you tell if a firm is regulated by the FCA?
All regulated firms are listed by name in the FCA Register. FCA registered companies will have a reference number.
For example, Lloyds Bank PLC has the reference number 119278.
Firms are registered on a legal entity by legal entity basis. Therefore a group of companies may all need to register separately with the FCA, and may hold different permissions to each other.
Financial services firms often ring-fence certain activities to a single subsidiary company so that only that individual firm must obtain the relevant permission.
If you click on a company name on the FCA register, you’ll be able to view all of the permissions held by the firm:
The FCA Authorised Person system
The FCA understands that firms will act more responsibly when they are run by responsible individuals. That’s why it asks to vet any person who will be employed in a critical role involved in supervising the firm or performing a key compliance function. These roles are known as ‘controlled functions.
This regulation prevents, for example, a convicted fraudster from becoming the CEO of a fund management company.
Controlled functions can be grouped together:
Roles with significant influence over the operations of the firm, such as director, non-executive director, chief executive or partner.
Roles with oversight and responsibility for compliance functions, such as a compliance manager, the Money Laundering Reporting Officer (MLRO), or someone supervising how client money is handled.
Employees who directly exercise judgement and care in providing advice to clients, such as financial advisers and actuaries.
FCA enforcement powers
The Financial Conduct Authority is armed with powerful tools to change the behaviour of firms or punish bad actors for wrongdoing.
Fines
The Financial Conduct Authority has the power to levy virtually unlimited fines upon companies for wrongdoing. In October 2021, it announced that it had slapped Swiss investment bank Credit Suisse with a £147m fine in connection with loans ‘tainted with corruption’ which it helped arrange for the Republic of Mozambique.
Winding up a firm
The FCA can apply to the courts to have a company wound up and effectively prevented from trading.
Public notices
The FCA can inform the public about the action it is planning to take or has taken in relation to enforcement. This helps protect the public by raising the profile of scams, clone firms or poor conduct by regulated businesses. The threat of public notices from the FCA also serves as a deterrent for large firms because they will understand that enforcement will not necessarily take place behind closed doors.
You can review all public notices issued by the FCA on the National Archives website.
Prosecution
The FCA also works in conjunction with other government agencies, including the police and criminal prosecution service. These bodies would formally pursue criminal charges against directors or others suspected of committing criminal offences, such as those that fall under anti-money laundering regulations, the Bribery Act or insider trading law.