The Financial Servies 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.

Her Majesty's Treasury (HMT) has the power to enact secondary legislation under FSMA governing the way in which 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 for which firms must receive FSA permission or authorisation.

The FSA is the designated competent authority under the European single market directives for banking, insurance, investment business, and other financial services including insurance intermediation. The FSA is also the competent authority under a host of other EU directives, including the Market Abuse and Prospectus Directives. European legislation affecting the FSA is implemented domestically through FSMA and / or HMT regulations.

Other main areas of FSA regulation include pension schemes and activities relating to mortgage contracts.

The FSA has authorisation, enforcement, supervision and rule making functions in relation to firms. It has 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 the FSA to pursue four objectives, each of which is given equal weighting:

  • "maintaining market confidence in the financial system;
  • "promoting public understanding of the financial system, including awareness of the benefits and risks of different kinds of investment or other financial dealing;
  • "securing the appropriate degree of protection for consumers, while having regard to the degree of risk involved in different kinds of investment or transaction, the expertise and experience of consumers, the needs of consumers 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 the FSA's general rule-making and policy-making functions. In carrying out these functions FSMA requires the FSA to have regard to a number of matters, which we refer to as "principles of good regulation". These are:

  • "the need to use our resources in the most efficient and economic way;
  • "recognising the responsibilities of regulated firms' own management;
  • "the principle that the burdens and restrictions imposed by regulation should be proportionate to the benefits;
  • "the international character of financial services and the desirability of maintaining the UK's competitive position;
  • "the desirability of facilitating innovation;
  • "the desirability of facilitating competition;
  • "the need to minimise the adverse effects of regulation on competition.

The FSA is a body corporate limited by guarantee and is subject to generally applicable company and accounting law. FSMA gives specific responsibilities to the FSA's non-executive directors - such as reviewing the economic and efficient use of the FSA's resources and setting the pay of executive Board members. It also sets out a number of explicit standards that the FSA must meet in carrying out its duties - for example, time periods within which it must take certain decisions.

The FSA has powers over unregulated firms and persons for market abuse offences and for breaches of money laundering regulations. The FSA also has the power to prosecute unauthorised firms or persons carrying on regulated activities.

Non-FSMA Legislation

In addition to FSMA the FSA has 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 the FSA has under non-FSMA legislation:

Enterprise Act 2002

The FSA is designated as a consumer enforcer under the Act. This gives the FSA 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

The FSA is designated as an accredited financial investigator for the purposes of confiscations investigations and for restraining orders.

Unfair Terms in Consumer Contracts Regulations 1999

The FSA 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 the FSA to be unfair.

Distance Marketing Regulations 2004

The FSA is designated as the body responsible for considering and, if necessary, taking action against persons responsible for breaching specified contracts.

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