UK Regulatory Framework

UK Regulatory Framework

1. Rationale

   • For
     • Consumer protection
       • Information asymmetry
       • intangible product
       • long term nature
     • Vulnerability to financial crime
       • more than other industries
     • Systemic failure of the economy
       • contagion effect
     • minimise monopolistic/ anti-competitive behaviours
       • larger firms - economies of scale
       • barrier to entry
       • reduction in competition
         • higher prices
         • less consumer choice
   • Against
     • monetary cost of compliance
       • passed to consumer
     • Cost is barrier to entry to industry
       • less competition
       • less consumer choice

2. Regulation

   • laws
   • Rules
   • Principles
   • guidance
   • standards
   • Based in statute
     • supervised by designated body

3. Background to Regulation

   • Before 1 Dec 2001 [N2]
     • Self regulatory
       • Prevention of Fraud (Investments) Act 1958
         • registered or exempt
         • scope narrow & open to interpretation
       • voluntary system of regulation
         • City of London 'club'
     • Reasons for change in approach
       • growth in disposable incomes
         • gtr demand
       • globalisation of industry
       • increased competition
       • financial services scandals 70s/80s

4. Developments leading to N2

   • The Gower Report
     • mandate
       • statutory investor protection
       • ctrl of investment advice & mgmt
       • could legal changes be made to improve consumer protection?
       • developments in EEC
     • self regulation in statutory framework
       • self regulatory organisations (SROs)
         • designated gov agency
     • Financial Services Act (FSAct) 1986 [A Day]
       • investment business
       • Exclusions
         • Banking
           • BoE - Banking Act 1987
         • Building Socs
           • Building Socs Commission
             • Building Societies Act 1986
         • Friendly Societies
           • Friendly Socs Commission
             • Friendly Societies Act 1974
         • Prudential & Corp conduct - Insurance Co's
           • Treasury
             • Insurance Companies Act 1982
       • Securities & Investments Board (SIB)
         • recognised self regulatory orgs (SROs)
           • Personal Investment Authority (PIA)
           • Investment Management Regulatory Organisation (IMRO)
           • Securities & Futures Authority (SFA)
           • Rqd to adopt SIBS principles & rules
         • recognised other bodies
           • Recognised Professional Bodies (RPBs)
             • e.g. Law Society
             • Recognised Investment Exchanges (RIEs)
             • Recognised clearing houses (RCHs)
         • Firms could be authorised by SRO or direct by SIB
           • authorised before do business
         • Concepts intro
           • Polarization
           • best execution & best advice
       • ist attempt to intro structured reg regime
   • 1997 Reforms
     • SIB renamed FSA Oct 97
       • N1 - Jun 98 - FSA took over bank supervision
     • Reasons
       • Criticism FSAct
       • complexity of SRO rulebooks
         • burdonsome
         • confusing to consumers
       • principles of self regulation not evident
       • FSAct failed consumers
         • pensions mis-selling 80s
         • mis-selling low cost endowment plans 80s/90s

5. FSMA 2000 [N2]

   • 1 regulator
   • Key Provisions
     • Authorisation
       • s.19 General Prohibition
       • Some bodies exempt
         • Exempt Persons Order
           • designated professional bodies
           • BoE
           • European Central Bank
     • Products
       • almost all financial products
         • Peer to Peer lending - Apr 14
     • Powers & Duties for FSA
       • Authorise
       • investigate
       • Discipline
       • ctrl of fin proms
       • marketing of collective investment schemes
       • 4 regulatory objectives
         • FCA strategic objective
         • PRA statutory objectives
     • Principles
       • 11 Principles for Business
       • 7 Stmts of Principle for Approved Persons
       • Principles of good regulation
     • Other Bodies
       • FOS
       • FSCS
       • Fin Svcs & Markets Tribunal (FSMT)
         • now replaced by Upper Tribunal
     • Approved Persons
     • Market Abuse
       • intro civil offence
     • Est FSA
       • Financial Services Act 2010
         • removed FSA customer education objective
           • set up independent body Consumer Financial Education Body
         • new FSA objective
           • protecting & enhancing UK financial stability
         • Required FSA to ensure firms have remuneration policy
         • Enhance enforcement powers
           • suspend firms/individuals for disciplinary reasons
             • credible deterrence
   • Financial Services Act 2012
     • twin peaks structure
       • PRA / FCA given statutory powers

6. Other Regulatory Bodies

   • FSCS
     • fund of last resort
     • compulsory levy on firms
   • FOS
     • complaints
     • max award £150k
       • In Focus Asset Management & Tax Solutions to clients Barry and Julie Clark - Court of Appeal 2014
         • FOS award final can't sue for more
   • The Upper Tribunal
     • taken over powers of FSMT
     • decisions on
       • discipline firms/Approved Persons
       • Vary permissions
       • deal with market abuse
       • withdraw individual approval
       • make prohibition orders
     • FSMT - Legal & General case
       • Strachan Report
         • investigations separate from decisions
   • Bank of England
     • set monetary policy
     • Lender of last resort
   • UK Listing Authority
     • listing of securities
   • Recognised Investment Exchanges (RIEs) & Recognised Clearing Houses (RCHs)
     • exempt from need to be authorised
   • UK Government
     • Treasury
     • Dept for Businss Innvation & Skills (BIS)
     • Dept for Work & Pensions (DWP)
     • OFT
     • NCA
     • serious fraud office