The new Financial Services Act came into effect on 1 April 2013. What are the key highlights of this long awaited legislation?
The overarching aim of the Act is clear – to update the current regulatory framework for the supervision and management of the UK’s financial services industry that many consider failed to protect the economy during the financial crisis.
As such, in the main, the Act makes extensive amendments to the Financial Services and Markets Act 2000 (FSMA), the Bank of England Act 1998 and the Banking Act 2009 in order to facilitate the structural reforms. So what will the new structure look like?
On 1 April 2013, the “legal cutover” will take place and the current tripartite system will be overhauled. The Bank of England will have primary responsibility for economic stability and will oversee three new bodies: the Financial Policy Committee (FPC), the Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA).
In simple terms, the FPC will be created as a committee of the Bank of England and will be primarily responsible for assisting the Bank of England in achieving its objectives and macro prudential regulation. The PRA and FCA have been formed from the current Financial Services Authority (FSA). The PRA will be responsible for the prudential regulation of deposit takers, insurers and significant investment firms. Whilst the FCA will be primarily responsible for conduct and compliance, with its primary operational objectives being consumer protection, integrity and effective competition.
In line with its consumer protection objective, the Act will also give the FCA new powers of intervention, which will enable the FCA to ban or restrict financial products and publish details of misleading financial promotions without consultation. Going forward, the FCA will also be able to disclose the fact that a warning notice has been issued against a firm or individual in relation to proposed disciplinary action.
As well as the regulatory regime reforms, the Act also brings additional changes of significance. Below are the key highlights for corporates operating in the UK:
There is no doubt that the introduction of the Act will bring about the most significant change to the financial services regulatory regime in the UK in recent times. A change many say has been long overdue.
It has already been made clear that the FCA going forward is intent on bringing about a change to the culture of financial services in the UK, with customers, as opposed to profit, being at the heart of business. The new interventionist powers granted to the FCA are clearly at the centre of this ambition. It remains to be seen however how effective the new regulatory regime will be in practice and whether the “journey to the FCA” will bring about a change of culture in the UK financial services industry.
What will be the immediate impact on you?
Firms that are currently regulated by the FSA will now become “dual regulated” by the PRA and FCA if they fall within the PRA’s jurisdiction. This potentially increases the regulatory burden they face and raises the challenge of dealing with two new regulators with different objectives.
Given the position of the FCA and its intention to take more enforcement action, it is important for regulated firms to ensure that they are aware of the impact the Act and the regulatory reforms will have on their business. Firms will need to update all aspects of their systems and controls; from updating internal compliance policies and procedures through to ensuring that they aware of the new approach to supervision and risk mitigation.
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