Financial Services Regulation
♥ Much of the discussion in the media and journals was that the Financial Services Authority was not powerful enough, despite the initial concern after its creation as a single integrated regulator that it was too powerful
♥ Wider role of the FSA
♥ FSMA gives FSA objectives:
1. Maintenance of market confidence
2. Financial stability – avoiding solvency
3. Protection of consumers (banking consumers, those who take investment advice)
4. Reduction of financial crime – money laundering, financial fraud etc.
♥ Obligation to enhance public understanding on financial matters – establishing a separate body (Consumer Financial Education Body – added 2010)
♥ Whatever action the Financial Services Authority takes must be justifiable in relation to those four objectives
♥ FSA’s actions are reported, scrutinised in reports
♥ The 4 objectives are defined further in s3, 3A, 5 and 6
♥ Problem that definitions are circular – hard to pin down a real legal meaning
♥ In any proposals to reform: tension between control and desire to continue with a profitable industry
♥ Narrower role of the FSA
♥ Regulate and supervise those who are not authorized to provide “regulated activities”
♥ FSMA 2000 s2(4): ‘general functions’
♣ Making rules
♣ Preparing and issuing codes of practice
♣ Giving guidance on interpretation
♣ Settling policies to guide it in undertaking its role
♥ Ss8-11 FSMA 2000
♣ Appoints a panel of individuals for a practitioner panel
♣ FSA consults the panel
♣ Holds FSA to account
♥ FSA has recently been established. It has a wide variety of obligations and objectives. It must interact with a wide constituency of people and firms.
♥ Regulated activities
♥ A regulated activity is an activity of a specified kind that is carried on by way of business (profit-making organization) and relates to an investment of a specified kind (e.g. shares, bonds, currency, swaps, derivatives… etc.) or is carried on in relation to property of any kind (leasehold property, freehold property, oil, wheat etc.) – s22
♥ Examples: see handout
♥ General prohibition: tighten down unregulated activities
♥ Criminal offence to carry on a regulated activity in the UK unless they are authorized or exempt
♥ Contracts made in breach of this will be unenforceable
♥ Exempt is an extremely small category
♥ Authorized persons:
♣ S31: A person who has permission under Part IV (the most common route)
♣ EEA and Treaty firms qualify under sch 3 or 4 – ‘passporting rights’
♥ Exempt persons:
♣ s38: treasury can exemplify persons by making an order to allow it
♥ Part IV Permission:
♣ Have to satisfy threshold conditions:
• Legal status – a company?
• Location of UK office – physical address
• Claims representatives in other EEA states – must be a physical person in other states to represent the company
• Close links – Board of Directors
• Adequate resources
o Quantity
o Quality
o Availability of resources
o IT resources; financial resources etc.
o Rules are in the ‘Handbook’ COND 2.4
• Suitability
o Applicant must be a ‘fit and proper’ person
o Handbook COND 2.5
o Integrity
o Competent and prudent management
o Due skills and diligence
♣ FSA has power to cancel or vary Part IV permission
♣ Should enforce and supervise more closely? Draconian idea
♣ Ss44 and 45 FSMA
♥ Wider role of the FSA
♥ FSMA gives FSA objectives:
1. Maintenance of market confidence
2. Financial stability – avoiding solvency
3. Protection of consumers (banking consumers, those who take investment advice)
4. Reduction of financial crime – money laundering, financial fraud etc.
♥ Obligation to enhance public understanding on financial matters – establishing a separate body (Consumer Financial Education Body – added 2010)
♥ Whatever action the Financial Services Authority takes must be justifiable in relation to those four objectives
♥ FSA’s actions are reported, scrutinised in reports
♥ The 4 objectives are defined further in s3, 3A, 5 and 6
♥ Problem that definitions are circular – hard to pin down a real legal meaning
♥ In any proposals to reform: tension between control and desire to continue with a profitable industry
♥ Narrower role of the FSA
♥ Regulate and supervise those who are not authorized to provide “regulated activities”
♥ FSMA 2000 s2(4): ‘general functions’
♣ Making rules
♣ Preparing and issuing codes of practice
♣ Giving guidance on interpretation
♣ Settling policies to guide it in undertaking its role
♥ Ss8-11 FSMA 2000
♣ Appoints a panel of individuals for a practitioner panel
♣ FSA consults the panel
♣ Holds FSA to account
♥ FSA has recently been established. It has a wide variety of obligations and objectives. It must interact with a wide constituency of people and firms.
♥ Regulated activities
♥ A regulated activity is an activity of a specified kind that is carried on by way of business (profit-making organization) and relates to an investment of a specified kind (e.g. shares, bonds, currency, swaps, derivatives… etc.) or is carried on in relation to property of any kind (leasehold property, freehold property, oil, wheat etc.) – s22
♥ Examples: see handout
♥ General prohibition: tighten down unregulated activities
♥ Criminal offence to carry on a regulated activity in the UK unless they are authorized or exempt
♥ Contracts made in breach of this will be unenforceable
♥ Exempt is an extremely small category
♥ Authorized persons:
♣ S31: A person who has permission under Part IV (the most common route)
♣ EEA and Treaty firms qualify under sch 3 or 4 – ‘passporting rights’
♥ Exempt persons:
♣ s38: treasury can exemplify persons by making an order to allow it
♥ Part IV Permission:
♣ Have to satisfy threshold conditions:
• Legal status – a company?
• Location of UK office – physical address
• Claims representatives in other EEA states – must be a physical person in other states to represent the company
• Close links – Board of Directors
• Adequate resources
o Quantity
o Quality
o Availability of resources
o IT resources; financial resources etc.
o Rules are in the ‘Handbook’ COND 2.4
• Suitability
o Applicant must be a ‘fit and proper’ person
o Handbook COND 2.5
o Integrity
o Competent and prudent management
o Due skills and diligence
♣ FSA has power to cancel or vary Part IV permission
♣ Should enforce and supervise more closely? Draconian idea
♣ Ss44 and 45 FSMA