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The Financial Services Authority is often described as the City regulator but its role extends well beyond keeping the capital’s streets clean of cowboys and rogues.

What is the FSA?

The FSA has been the country’s single regulator for financial services since 2001. It was set up by the Labour government with the aim of promoting efficient, orderly and fair financial markets, and helping retail financial service consumers get a fair deal. It is an independent body. However, the government is responsible for the overall scope of the FSA’s regulatory activities and for its powers. The Treasury appoints the FSA board, which is accountable to Treasury ministers.

What does it do?

The FSA has four statutory objectives: to maintain confidence in the financial system; promote public awareness of the financial system; secure the appropriate degree of protection for consumers; and the reduction of financial crime, such as money laundering. It is responsible for the handbook of rules and guidance for all authorised financial firms carrying out business in the UK.

The FSA’s original focus was on deposit-related business and the markets. But this has since widened to include mortgage business and general insurance.

Who does it regulate?

Firms and individuals doing investment-related business in the UK, including those selling mortgages, pensions and general insurance, such as car and health policies. In addition, brokers, intermediaries and sales staff working in the industry must be approved by the FSA. Nearly 29,000 firms are currently under the FSA’s supervision.

Can you give me some examples of the FSA’s work?

As part of its remit to promote efficient and orderly markets, the FSA last year worked to stem the possible destabilising repercussions from a global futures brokerage which was on the brink of collapse. It did this by liaising with the Bank of England, overseas regulators and the Treasury, among others, to ensure market confidence was maintained in very turbulent circumstances. It has also been actively involved in considering the regulatory implications of recent takeover bids for the London Stock Exchange. On the consumer front, some of its biggest campaigns have uncovered serious shortcomings in the lifetime mortgages market – aimed at people looking to unleash the equity tied up in their home – and in the sale of payment protection insurance. One of its biggest projects has been the roll-out of mortgage and general insurance regulation in 2004 and 2005 respectively.

How does the FSA regulate?

The FSA needs to target its efforts, given the sheer volume of firms it supervises. It does this by taking a “risk-based” approach to carrying out its duties.

What does that mean?

Broadly, it means the regulator aims to limit its interventions to areas where the market can’t come up with its own solution and will take into account the costs and benefits to the industry, consumers and its own budget when deciding if or how to act. Whether it takes a light or heavy approach depends on how much risk it believes the firm or industry poses.

How does it spot problems?

Consumers can report concerns about individuals or firms directly to the FSA and it will investigate. Market-wide problems, such as mis-selling, are usually identified through “thematic” work using mystery shoppers, supervisory visits and desk-based reviews. These types of probes can take up to a year.

What powers does it have to enforce its rules?

It can remove a firm’s authorisation, levy fines or for more serious offences, initiate court prosecutions. According to the FSA’s most recent annual report, 227 investigations were closed during the year ending March 2006. Of these, 81 concluded with the use of powers (such as prohibition, financial penalties and variations of permission) and 146 without the use of powers. Private warnings were issued in 12 of these 146 cases. The FSA levied £17.4m in financial penalties during the year.

Why does it give private warnings and not name and shame all market abusers?

The FSA may decide that it is not appropriate to bring formal disciplinary action. Instead, it says it is helpful to make a firm or individual aware of how close they came to being the subject of formal disciplinary action. It rarely names and shames, much to the chagrin of consumer groups, as this is a measure of last resort under its confidentiality and enforcement rules.

What else can it do for consumers?

The FSA provides updates about the latest industry scams and swindles such as “boiler room” activity where unregulated firms peddle stocks and shares. The FSA’s website also has comparative tables and product guides to help consumers shop around for financial products. The FSA will also check that the firm you are dealing with is authorised if you are concerned.

What if I have a complaint about the FSA?

The Complaints Commissioner hears grievances about the FSA. Since April 2005, the commissioner received 126 allegations and complaints, more than half from consumers rather than firms.

www.fsa.gov.uk

Consumer helpline: 0845 606 1234

consumerhelp@fsa.gov.uk

Copyright The Financial Times Limited 2017. All rights reserved.
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