UK Regulatory Framework

Rationale
1. For
  1. Consumer protection
    1. Information asymmetry
    2. intangible product
    3. long term nature
  2. Vulnerability to financial crime
    1. more than other industries
  3. Systemic failure of the economy
    1. contagion effect
  4. minimise monopolistic/ anti-competitive behaviours
    1. larger firms - economies of scale
    2. barrier to entry
    3. reduction in competition
      1. higher prices
      2. less consumer choice
2. Against
  1. monetary cost of compliance
    1. passed to consumer
  2. Cost is barrier to entry to industry
    1. less competition
    2. less consumer choice
Regulation
1. laws
2. Rules
3. Principles
4. guidance
5. standards
6. Based in statute
  1. supervised by designated body
Background to Regulation
1. Before 1 Dec 2001 [N2]
  1. Self regulatory
    1. Prevention of Fraud (Investments) Act 1958
      1. registered or exempt
      2. scope narrow & open to interpretation
    2. voluntary system of regulation
      1. City of London 'club'
  2. Reasons for change in approach
    1. growth in disposable incomes
      1. gtr demand
    2. globalisation of industry
    3. increased competition
    4. financial services scandals 70s/80s
Developments leading to N2
1. The Gower Report
  1. mandate
    1. statutory investor protection
    2. ctrl of investment advice & mgmt
    3. could legal changes be made to improve consumer protection?
    4. developments in EEC
  2. self regulation in statutory framework
    1. self regulatory organisations (SROs)
      1. designated gov agency
  3. Financial Services Act (FSAct) 1986 [A Day]
    1. investment business
    2. Exclusions
      1. Banking
        BoE - Banking Act 1987
      2. Building Socs
        Building Socs Commission
        Building Societies Act 1986
      3. Friendly Societies
        Friendly Socs Commission
        Friendly Societies Act 1974
      4. Prudential & Corp conduct - Insurance Co's
        Treasury
        Insurance Companies Act 1982
    3. Securities & Investments Board (SIB)
      1. recognised self regulatory orgs (SROs)
        Personal Investment Authority (PIA)
        Investment Management Regulatory Organisation (IMRO)
        Securities & Futures Authority (SFA)
        Rqd to adopt SIBS principles & rules
      2. recognised other bodies
        Recognised Professional Bodies (RPBs)
        e.g. Law Society
        Recognised Investment Exchanges (RIEs)
        Recognised clearing houses (RCHs)
      3. Firms could be authorised by SRO or direct by SIB
        authorised before do business
      4. Concepts intro
        Polarization
        best execution & best advice
    4. ist attempt to intro structured reg regime
2. 1997 Reforms
  1. SIB renamed FSA Oct 97
    1. N1 - Jun 98 - FSA took over bank supervision
  2. Reasons
    1. Criticism FSAct
    2. complexity of SRO rulebooks
      1. burdonsome
      2. confusing to consumers
    3. principles of self regulation not evident
    4. FSAct failed consumers
      1. pensions mis-selling 80s
      2. mis-selling low cost endowment plans 80s/90s
FSMA 2000 [N2]
1. 1 regulator
2. Key Provisions
  1. Authorisation
    1. s.19 General Prohibition
    2. Some bodies exempt
      1. Exempt Persons Order
        designated professional bodies
        BoE
        European Central Bank
  2. Products
    1. almost all financial products
      1. Peer to Peer lending - Apr 14
  3. Powers & Duties for FSA
    1. Authorise
    2. investigate
    3. Discipline
    4. ctrl of fin proms
    5. marketing of collective investment schemes
    6. 4 regulatory objectives
      1. FCA strategic objective
      2. PRA statutory objectives
  4. Principles
    1. 11 Principles for Business
    2. 7 Stmts of Principle for Approved Persons
    3. Principles of good regulation
  5. Other Bodies
    1. FOS
    2. FSCS
    3. Fin Svcs & Markets Tribunal (FSMT)
      1. now replaced by Upper Tribunal
  6. Approved Persons
  7. Market Abuse
    1. intro civil offence
  8. Est FSA
    1. Financial Services Act 2010
      1. removed FSA customer education objective
        set up independent body Consumer Financial Education Body
      2. new FSA objective
        protecting & enhancing UK financial stability
      3. Required FSA to ensure firms have remuneration policy
      4. Enhance enforcement powers
        suspend firms/individuals for disciplinary reasons
        credible deterrence
3. Financial Services Act 2012
  1. twin peaks structure
    1. PRA / FCA given statutory powers
Other Regulatory Bodies
1. FSCS
  1. fund of last resort
  2. compulsory levy on firms
2. FOS
  1. complaints
  2. max award £150k
    1. In Focus Asset Management & Tax Solutions to clients Barry and Julie Clark - Court of Appeal 2014
      1. FOS award final can't sue for more
3. The Upper Tribunal
  1. taken over powers of FSMT
  2. decisions on
    1. discipline firms/Approved Persons
    2. Vary permissions
    3. deal with market abuse
    4. withdraw individual approval
    5. make prohibition orders
  3. FSMT - Legal & General case
    1. Strachan Report
      1. investigations separate from decisions
4. Bank of England
  1. set monetary policy
  2. Lender of last resort
5. UK Listing Authority
  1. listing of securities
6. Recognised Investment Exchanges (RIEs) & Recognised Clearing Houses (RCHs)
  1. exempt from need to be authorised
7. UK Government
  1. Treasury
  2. Dept for Businss Innvation & Skills (BIS)
  3. Dept for Work & Pensions (DWP)
  4. OFT
  5. NCA
  6. serious fraud office

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UK Regulatory Framework

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