Monitoring Business Behaviour: Financial Services Authority

Quiz 2-What are some of the watchdog organizations that are tasked with monitoring the behavior of corporations? What happens if they fall down on the job? Should they receive a penalty?

Originally, one of the key UK Financial regulators was the Financial Services Authority (FSA). This was an independent regulatory authority created in 1997 effectively financed from the regulated corporations and answerable to the Treasury. The FSA was empowered to act under the auspices of the Financial Services and Markets Act of 2000. Recently, the FSA received extensive criticism and was deemed unsuitable. According to Treanor (2013), the FSA was unable to control the banks and in effect allowed corporations to expand exponentially in the mid 2000s with virtually minimal input into their control. Subsequently, the Chancellor of the Exchequer revealed plans in 2013 to replace the FSA following claims that the FSA had effectively failed and there were claims that there was a vested interest in that the body was funded by the corporations it regulated (The New Statesman, 2013). Effectively, this demonstrates the ultimate penalty that a body can pay if it fails in its primary goal.

The FSA according to Meek (2012) was divided into two bodies with responsibility for prudential and conduct elements. According to Chapelle (2014), jurisdiction for the control element was handed over to the Financial Conduct Authority (FCA), which has responsibility to oversee the financial services industry concerning conduct. The FCA regulates approximately 56,000 UK based financial companies and markets.

The FCA serves as an enforcement agent with the power to sanction and body which may not only sanction and penalize members under its authority, but additionally, to bring criminal charges to individuals who transgress the Financial Services and Markets Act 2000. The FCA works in conjunction with the Serious Fraud Office (SFO) which focusses on the investigation and subsequent prosecution of fraud (Gilchrist, 2012).

In April 2014 the FCA was designated the responsible authority to deal with the regulation of consumer credit-previously under the jurisdiction of the Office Of Fair Trading (Emery, 2015). Since its instigation, the FCA has penalized banks for greater penalties relating to the Libor and exchange rate scandals, increased compensation for customers following insurance scandals (Binham and Guthrie, 2015).

According to Meek (2012), control of the prudential element was handed over to the Prudential Regulation Authority (PRA), which will oversee the validity of financial corporations. The PRA is a section of the Bank of England and it additionally acts as the prudential regulator for approximately 25,000 of the corporations it oversees. Its primary role is to ensure financial institutions, including banks, insurers and certain investment firms, own sufficient capital and liquidity in the event of an adverse situation occurring. According to Cannon and Adams (2012) the PRA has a number of specific roles. This includes the monitoring and controlling the conduct of business supervision of financial corporations, prudential and conduct of business and markets supervision of corporations outside the PRA remit and enforcement.

An additional regulatory body is the Consumer Protection and Markets Authority (CMA) which took over the functions of the Competition Commission from 1 April 2014. As with the PRA, this body is part of the Bank of England and oversees such elements as anti-competitive practices, market failure, imbalanced contractual terms and conditions and competition-related matters. The CMA merged with the Office of Fair Trading absorbing its roles and responsibilities into the CMA. In its first year of operation, the CMA imposed fines of approximately £47 million focusing on high-value markets (Chisholm, 2016).

References

Binham, C., Guthrie, J., (2015). FCA: On the wrong side of the argument? Financial Times. Retrieved March 22, 2017, from https://www.ft.com/content/d3001740-1b3c-11e5-8201-cbdb03d71480

Cannon, L., Adams, P., (2012). Twin peaks regulation. Operational Risk & Regulation; London13.10 (Oct 2012): 32-33.

Chapelle, A., (2014). Conduct, not ‘conduct risk’. Operational Risk & Regulation; London15.10 (Nov 2014): 35.

Chisholm, A. (2016, July 21). United Kingdom: Competition and Markets Authority. Retrieved March 24, 2017, from http://globalcompetitionreview.com/benchmarking/the-european-middle-eastern-and-african-antitrust-review-2017/1067869/united-kingdom-competition-and-markets-authority

Emery, E., (2015). Consumer Credit under the Financial Conduct Authority. Credit Management; Stamford (Mar 2015): 67.

Gilchrist, S., (2012). The UK Financial Regulator and Serious Financial Crime. Credit Control; Hutton 33.1 (2012): 21-28.

Meek, J., (2012). Questions raised over FSA’s new twin peaks structure

Operational Risk & Regulation; London13.5 (May 2012): 8.

The New Statesman (2013) UK replaces FSA with two new regulatory authorities. The New Statesman. (2013, April 2). Retrieved March 23, 2017, from http://www.newstatesman.com/business/business/2013/04/uk-replaces-fsa-two-new-regulatory-authorities

Treanor, J., (2013). Farewell to the FSA – and the bleak legacy of the light-touch regulator. Retrieved March 24, 2017, from https://www.theguardian.com/business/2013/mar/24/farewell-fsa-bleak-legacy-light-touch-regulator