Transparency in the FSAs regulatory processes

Three draft manuals, published by the FSA, cover the authorisation of firms and individuals seeking to undertake financial services business, their subsequent supervision by the FSA, and how the FSA proposes to use its powers in the event of enforcement action being necessary.

Stressing the importance to the FSA of transparency in its regulatory processes, Managing Director Phillip Thorpe said,

This transparency in the FSAs procedures and decision-making goes well beyond the requirements of the legislation in setting out how we will do our job once we receive our full powers. We aim to put out the final version of this material in the early part of next year, allowing firms good time to prepare for the implementation of the Financial Services and Markets Act next summer.

FSA decision-making, and new mediation initiative

A key feature of the FSAs regulatory processes will be the Regulatory Decisions Committee (RDC) for some of the major regulatory decisions under the Financial Services and Markets Act. The scope of the RDC will include: authorisation cases where the FSA staff do not propose to accept the firms application; supervisory decisions that fundamentally change the type of business that a firm can do; and enforcement actions. Public interest members will comprise the majority on the Committee. The FSA is now seeking external applicants to serve part-time as public interest or practitioner members on the Committee.

Given the volume of decisions involved in day-to-day regulation, other authorisation and supervision decisions will be delegated by the FSAs board to FSA staff, in the interests of efficiency, as is already the case in many areas.

As specified in the Act, where a firm or individual does not accept the decision reached by the RDC or by FSA staff (where it is a matter for staff determination), they have the automatic right to refer the case to an independent Tribunal run by the Lord Chancellors Department.

Separately, for disciplinary and market abuse cases, the FSA is also proposing an independent mediation scheme that firms or individuals may choose if settlement discussions break down during the disciplinary process. This FSA initiative should help to avoid potentially lengthy and costly litigation.

Scope of the manuals

The main purpose of the authorisation manual is to guide applicants through how the FSA will process their applications. This includes firms seeking authorisation, individuals seeking approved person status, and EEA firms seeking to establish a branch in the UK or provide cross-border services into the UK, for example. In general, firms and individuals currently authorised will not need to re-apply.

The supervision manual will enable firms to understand the FSAs approach to their ongoing supervision, once authorised. It covers matters such as changes to the types of regulated activity a firm can undertake, rule waivers, changes to major shareholders and the need to have independent auditors. Material on how the FSA assesses risk in individual firms will be updated later this year in the light of continuing work to refine the risk model set out in the FSAs January 2000 publication, A new regulator for the new millennium.

The enforcement manual sets out how we shall use our enforcement powers in particular circumstances. This encompasses not only disciplinary action against authorised firms, but also criminal litigation and injunctions against firms carrying on investment or other financial services business illegally, and civil action in cases of market abuse.

This material forms the Regulatory Processes block of the FSAs Handbook of Rules and Guidance, making the draft Handbook substantially complete. The consultation period runs until the end of October. Also published today is a Response paper to an earlier consultation (CP29: The permission regime) on how the FSA proposed to exercise its powers to grant firms permission to carry on regulated business under the Act, and its proposals to include details of a firms permission in the FSAs public Register of authorised firms.

Notes for editors

1. All todays publications, including a summary, are available on the FSA website at www.fsa.gov.uk

2. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

3. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.

4. The FSAs Handbook of Rules and Guidance will be the single source of rules and guidance for all regulated firms and individuals under the Financial Services and Markets Act after it comes into effect. The Handbook replaces numerous rule books, guidance notes, regulatory updates, etc issued by the preceding regulators. It is split into five sections: high-level standards; business standards; regulatory processes; redress; and specialist sourcebooks.

5. The FSA previously consulted on its enforcement proposals in December 1998 (CP17) and its proposals for taking action against illegal financial services business (known as breaching the perimeter) in July 1999 (CP25). The FSA consulted on its proposed guidance on the conditions for authorisation in March 1999 (CP20) and its proposals for the permission regime in October 1999 (CP29). The responses to CP17, CP20 and CP25 were published in July, October and December 1999 and the response to CP29 is being published with the draft manuals. The FSAs detailed proposals, largely expanding on those in the earlier consultation are contained in todays draft manuals. The feedback was summarised in the Response papers.

6. The government announced on 18 July that the Financial Services and Markets Act 2000 would be implemented in approximately a year's time, with a firmer date being given by the end of 2000.

Appended information

All three manuals are available from the publications section of our web site. The direct URL is http://www.fsa.gov.uk/pubs/cp/.