What is the Financial Conduct Authority (FCA)?

The Financial Conduct Authority (FCA) is responsible for the integrity of the UK’s financial markets. They regulate over 51,000 financial institutions in their consumer duty to create fairness and transparency in the financial services sector.

A history of financial regulation in the UK?

Founded in April 2013, the FCA actually took over from another panel- the UK’s Financial Services Authority. The organisation was established in order to ensure that not only the markets were working well, but that they were fair in order to promote competition. This was decided to be the most beneficial for the UK’s consumers.

At the same time, the first iteration of the Financial Services Act came into force, designed to maintain the integrity of the financial markets and legally bind institutions under the FCA. It was recently updated in 2021, coming into effect in January 2023. These updates include information on specific collective and individual investment schemes in outside countries. 

The FCA works with the UK’s prudential regulation authority (PRA) in order to set prudential regulation requirements. This means that financial institutions must act in the best interests of consumers (even when there is no specific regulation around it), as well as being able to manage the negative consequences of their actions. 

The FCA is actually regulated itself through HM treasury. With fair trading, consumer protection and financial crime under the microscope, the UK’s government branch required an input.

How does the FCA work?

The FCA works by focusing on three main objectives:

1. Protect consumers
2. Maintain market integrity
3. Promote effective competition

In order to achieve these on-going objectives, the FCA performs research and investigations before providing new frameworks, which are introduced across the markets. They typically assess the risks and potential market failures before creating policies to manage this. 

Any firm that wishes to perform financial services must first gain FCA authorisation, since most services are deemed a regulated activity. Any regulated firm can be found on the FCA register, and is subject to enforcement action if deemed in violation of the regulation.

For example, 2021 saw the FCA release its first TikTok and Instagram campaigns, aimed at young, high-risk investors around various financial products. The ‘don’t get played’ campaign ran alongside a new jingle aimed at reminding consumers to check the credibility of their potential lenders as an authorised firm.

This meant alerting the public to over 1,300 scams and building a new tool to help the public invest in a more straightforward way. As part of the InvestSmart campaign, the FCA regulation included more intensive investigations in order to disrupt suspicious activities. 

Additionally, the COBS regulation aims to promote fairness by specifying the communications and language that financial institutions must use around investment risks.

The FCA has also established new methods and policies for measuring financial risk. This is implemented across the market so that consumers can gain a better understanding of which decisions to make, since it offers a direct comparison. 

Who must comply?

The Financial Conduct Authority regulates all manner of financial institutions; from mortgage providers, to insurance firms and pension companies too. Banks and building societies are also under the jurisdiction of the FCA, as well as credit unions, and public corporations that are open for the public to invest in. 

The best way for financial organisations to be ‘FCA-fit’ is to work prudentially, with the rights of the consumer in mind. Since the UK regulator has sweeping powers to investigate, enforce and make new rules, staying above board here might be harder than with other regulatory bodies. 

Ensure your firm is ready to comply with CUBE.