The Financial Services Authority (FSA) was created by the Financial Services and Markets Act 2000 (FSMA), the primary piece of legislation from which it derives its powers and functions. Rules and guidance made in the FSA Handbook are made by powers found in FSMA.
The Treasury has the power to enact make secondary legislation under FSMA, which affects the way the FSA operates. The most important piece of secondary legislation is the Financial Services and Markets Act (Regulated Activities) Order 2001 (RAO).The RAO sets out the specific activities which firms must receive FSA permission (known as a Part IV permission) to carry on.
We are the designated competent authority under the European single market directives for banking, insurance, investment business, payment services, collective investment schemes and other financial services, including insurance intermediation. We are also the competent authority under a host of other EU directives, including the Market Abuse and Prospectus Directives. European legislation affecting the FSA in regulated financial services is implemented through FSMA FSA rules and/or Treasury regulations.
Other main areas of FSA regulation include personal pension schemes and activities relating to regulated mortgage contracts. We have authorisation, enforcement, supervision and rule-making functions for firms. We have registration functions under the various pieces of legislation applicable to mutual societies and related functions under other legislation applicable to financial services and listing.
FSMA requires us to pursue four objectives: each of which is given equal weighting:
- Maintaining market confidence in the UK financial system.
- Contributing to the protection and enhancement of the stability of the UK financial system, while having regard to: the economic and fiscal consequences for the UK of instability of the UK financial system; the effects (if any) on the growth of the UK economy of anything done for the purpose of meeting that objective; and the impact (if any) on the stability of the UK financial system of events or circumstances outside the UK.
- Securing the appropriate degree of protection for consumers, while having regard to: the differing degrees of risk involved in different kinds of investment or transaction; the differing degrees of expertise and experience of consumers; information provided to the FSA by the Consumer Financial Education Body; the needs that consumers may have for advice and accurate information; and the general principle that consumers should take responsibility for their decisions.
- Reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime, such as money laundering, fraud and insider dealing.
FSMA applies these objectives directly to our general functions of making rules, general guidance and policy and our function of preparing and issuing codes. In carrying out these functions, FSMA requires us to have regard to a number of matters, which we refer to as ‘principles of good regulation’. These are:
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the need to use our resources in the most efficient and economic way;
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recognising the responsibilities of regulated firms' own management;
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the principle that the burdens and restrictions imposed by regulation should be proportionate to the benefits;
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the international character of financial services and the desirability of maintaining the UK's competitive position;
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the desirability of facilitating innovation;
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the desirability of facilitating competition between those subject to regulation;
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the need to minimise the adverse effects of regulation on competition; and
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the desirability of enhancing the understanding and knowledge of members of the public of financial matters (including the UK financial system).
We are a body corporate limited by guarantee and we are subject to generally applicable company and accounting law. FSMA gives specific responsibilities to our non-executive directors – such as reviewing the economic and efficient use of our resources and setting the pay of executive board members. It also sets out a number of explicit standards that we must meet in carrying out our duties – for example, time periods within which we must take certain decisions.
We have powers over unregulated firms and persons regarding market abuse, breaches of money laundering regulations and short selling. We also have the power to prosecute unauthorised firms or persons carrying on regulated activities.
Non-FSMA legislation
In addition to FSMA we have regulatory powers under the
- Building Societies Act 1986;
- Friendly Societies Acts (1974 and 1992); and
- Industrial and Provident Societies Act 1965.
The following are some of the more significant functions we have under non-FSMA legislation.
Enterprise Act 2002
We are designated as a consumer enforcer under the Enterprise Act 2002. This gives us the power to apply to the courts to stop traders infringing a wide range of consumer protection legislation where those infringements harm the collective interests of consumers.
Proceeds of Crime Act 2002
We are designated as an accredited financial investigator for confiscations investigations and restraining orders.
Unfair Terms in Consumer Contracts Regulations 1999
We may seek an injunction to prevent the use of a contract term drawn up for general use in a financial services contract that appears to us to be unfair as described in the regulations.
Financial Services (Distance Marketing) Regulations 2004
We are designated as the body responsible for considering and, if necessary, taking action against persons responsible for breaching specified contracts the requirements under the regulations relating to certain financial services contracts entered into at a distance.
Money Laundering Regulations 2007
We are designated as the supervisory authority for credit and financial institutions (firms), trust or company service providers (firms) and for various other financial institutions. As such, we must effectively monitor such persons and take whatever measures are necessary to ensure their compliance with the regulations.
Regulated Covered Bonds Regulations 2008
We are responsible for supervising the regime, including admission of issuers and bonds and reporting in relation to regulated covered bonds. We also maintain a register of the issuers of regulated covered bonds and we have supervisory and enforcement powers.
Payment Services Regulations 2009 and Electronic Money Regulations 2011
We are the body responsible for registering and authorising payment and e-money institutions; and regulating payment service and e-money providers.
Banking Act 2009
We determine whether the Treasury or the Bank of England may use the special resolution tools in Part 1 of the Banking Act by assessing whether the criteria relating to the FSMA threshold conditions, set out in section 7 of the Banking Act, are met.
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