The Financial Conduct Authority:
CEO introduces the FCA and how it assists startups
Michael Higgs Bristol - 12/09/2018
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The Basics
The FCA is a relatively new tool in the promotion of financial stability and regulation – taking over from the Financial Standards Authority (FSA) in 2013 after the FSA’s perceived failures as a regulatory institution after the 2007-2008 Financial Crisis. (1) Its remit is wide – covering the protection of consumers (as noted with recent public campaigns such as those protecting pension schemes)(2), the protection of financial markets, and the promotion of competition for the benefit of consumers. With this, it is accountable to HM Treasury and Parliament, both of which review and shape its remit.(3) How does the FCA regulate and assist start-ups? The FCA Handbook sets out the FCA’s legislative and other provisions made under powers given to them by the Act.(4) It is a vital tool for those looking to understand rules and rule-making by this institution and provides start-ups with the necessary assistance to determine what regulates those seeking to create and market financial products within the UK. However, the FCA is not simply about the creation of new rules but also about developing competition. Further to this, the FCA helps to create regulatory innovation through its Regulatory Sandbox(5) – which has more recently encompassed developing financial products such as cryptocurrencies.(6) It plans to further this with financial technology – ‘fintech’ – within its future sandboxes and to widen the scope of it internationally.(7) It is important for start-ups to know their responsibilities regarding their regulatory position and the FCA. For example, companies such as TransferWise, one such recent start-up, are authorised by the FCA as select entities - in this case as an Electronic Money Institution – and are therefore subject to its regulations. If this isn’t the case, the impact of this can be critical for such firms, with the FCA carrying wide-ranging powers to bring enforcement against firms which do not cooperate with these regulations – from fines, the withdrawal of their authorisation and even criminal prosecution.(8) Evolving financial markets and regulation Regardless of this, there is a responsibility for funds and companies to ensure that their work is carried out with respect and care for consumers, even if those regulations do not exist. The downfall of Wonga has been accredited to this, whereby a ruling by the FCA over the unfair terms of its loans resulted in claims that led to it seeking administration.(9) Criticism has been directed at the FCA for its failure to discipline certain banks over their treatment of small businesses.(10) However, this was partly due to the lack of regulatory power for it to do so, which changed in 2016 to widen its scope and addressing this matter. This further iterates the ever-changing scope of legislation and markets with which the FCA must regulate and the positive approach to enforcement in its subsequent direction by Parliament. It is the view of the FCA, post-Brexit, that it is beneficial to enhance regulation rather than to remove it, as noted by Christopher Woolard, head of strategy and competition at the FCA, who warned that a “race to the bottom benefits no one”.(11) Whether or not this is the case will be determined by the outcome of Brexit negotiations and the direction of the Government and Parliament, which will form a separate article to be published by CEO when the results of these negotiations have been concluded. |
(1) As with the Prudential Regulation Authority, also created through the Financial Services Act 2012
(2) https://www.theguardian.com/money/2018/aug/14/uk-regulators-launch-ad-campaign-to-warn-against-pension-scams
(3) https://www.fca.org.uk/about/the-fca
(4) https://www.fca.org.uk/publication/other/readers_guide.pdf, p5.
(5) https://www.fca.org.uk/firms/regulatory-sandbox
(6) https://www.coindesk.com/uk-watchdog-welcomes-first-crypto-startups-to-regulatory-sandbox/
(7) https://www.fnlondon.com/articles/fca-to-set-up-global-fintech-sandbox-20180319
(8) https://www.fca.org.uk/about/enforcement
(9) https://www.bbc.co.uk/news/business-45322061
(10) https://www.theguardian.com/business/2018/jul/31/fca-proves-to-be-a-paper-tiger-in-case-of-rbs-mistreatment
(11) https://www.ft.com/content/50620d2d-a432-372e-92c0-13bae8609fb2
(2) https://www.theguardian.com/money/2018/aug/14/uk-regulators-launch-ad-campaign-to-warn-against-pension-scams
(3) https://www.fca.org.uk/about/the-fca
(4) https://www.fca.org.uk/publication/other/readers_guide.pdf, p5.
(5) https://www.fca.org.uk/firms/regulatory-sandbox
(6) https://www.coindesk.com/uk-watchdog-welcomes-first-crypto-startups-to-regulatory-sandbox/
(7) https://www.fnlondon.com/articles/fca-to-set-up-global-fintech-sandbox-20180319
(8) https://www.fca.org.uk/about/enforcement
(9) https://www.bbc.co.uk/news/business-45322061
(10) https://www.theguardian.com/business/2018/jul/31/fca-proves-to-be-a-paper-tiger-in-case-of-rbs-mistreatment
(11) https://www.ft.com/content/50620d2d-a432-372e-92c0-13bae8609fb2