What is the FCA?

The FCA or Financial Conduct Authority is the financial regulatory body in the UK. The FCA regulates the conduct of 58,000 financial markets and financial service providers. Above all, it ensures that financial markets are fair and effective for the consumer.

The FCA plays a “critical role in the lives of everyone in the UK, without which the modern economy could not function.” It’s independent of the UK government and is funded by charging fees to members of the UK financial services industry.

It has the power to regulate any conduct or marketing materials related to financial products, with a set of minimum standards. It also has the power to investigate individuals or organisations within the financial services sector.

What does the FCA do?

The FCA’s primary aim is to make financial markets ‘work well’. The authority does this by regulating the conduct of more than 58,000 businesses. It has several powers which it can use if a business or individual is behaving in an unfair or dishonest way.

The FCA has the power to:

  • Investigate and suspend firms and individuals
  • Withdraw a firm’s authorisation
  • Stop individuals from carrying on regulated activities
  • Issue fines to companies or individuals who breach rules
  • Make public announcements at the beginning of disciplinary action
  • Deliver criminal prosecution against financial crime
  • Issue warnings and alerts to unauthorised firms
  • Request the deactivation of websites.

The biggest power the FCA has is to issue hefty fines against banks that have broken its rules. Especially while being unfair to the consumer. So far in 2019, it has issued fines totalling £79 million. All fines collected by the FCA are delivered to the Exchequer, minus any enforcement costs or expenses.

Protecting Consumers

The FCA works to ensure protection for consumers on mortgages, credit cards, loans, savings, pensions and ISA accounts. It monitors all firms and individuals that enter the UK’s financial markets. It ensures they meet FCA standards before they are authorised. As well as this, the FCA can supervise how firms work, stopping any that don’t meet their standards.

A couple shopping on their laptop, side on view. What is the FCA?

Consumers can report firms to the FCA if they suspect they are operating unfairly. This could be marketing materials or adverts in the newspaper or on TV. It also undertakes many outreach campaigns, raising awareness of its role and helping to make people aware of unfair practices.

What does FCA Approved mean?

To become an FCA Approved person or organisation, firms must prove to the FCA that they can perform their functions in-line with FCA regulations. This includes passing a ‘fit and proper test’, as well as proving they can perform a ‘controlled function’ within the standards of the FCA.

A controlled function is a role within an FCA regulated business that has particular regulatory significance. This can include being a director of a regulated firm or overseeing a firm’s systems and controls. 

When a firm or individual becomes FCA Approved, they can expect to be closely monitored. If an approved person or firm fails to comply with FCA requirements they can be fined or reprimanded. In some cases, they may lose their FCA Approved status.

When did the Financial Conduct Authority come into force?

The authority was formed on 1st of April 2013 after the Financial Services Act 2012 was passed into law. The act created a new regulatory framework and put an end to the Financial Services Authority.

As a result, the Financial Conduct Authority came into force. Since it was created, the FCA has collected hundreds of millions of pounds worth of fines from companies and banks breaking its rules and regulations.

How does the FCA regulate Innovative Finance ISA providers?

The FCA works to monitor and ensure that all Innovative Finance ISA providers operate in a fair and proper manner. The FCA also works to introduce contingency arrangement requirements. These arrangements are brought in to help platforms maintain a stable financial position.

Man putting coin in piggy bank. What is the FCA?

This works by protecting the borrower and lender as they operate in the peer-to-peer lending market. Any companies that work with peer-to-peer platforms must be aware of tightening FCA regulations. Most importantly, they have to adhere to a minimum capital requirement.

This requirement makes sure that a P2P platform can only grow in-line with the size of its loan book. This means that it must commit secured funds to the FCA as it grows, ensuring consumers can have confidence a platform is trading within its means.

Who is the FCA accountable to?

Although the FCA is an independent financial regulator, it is still accountable to the Treasury and Parliament. An annual report is delivered every year to the Treasury, outlining progress and allowing Parliament to examine performance against the FCA’s objectives.

The FCA must appear before Parliament’s Treasury Select Committee twice a year. The authority’s board is appointed by the Treasury, ensuring value for money for the tax payer. Any regulatory failure must be investigated and reported to the Treasury.

The FCA in action

In January 2019, the FCA launched an investigation into the conduct of mini-bond provider London Capital & Finance. The FCA investigated into misleading marketing campaigns undertaken by LC&F.

It announced publicly it was undertaking its investigation and froze LC&F’s assets. London Capital & Finance have been barred by the FCA from touching any money in their accounts as the investigation continues.

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