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What is the FCA?
The Financial Conduct Authority (FCA) is an independent public body that works to make sure financial service companies operate honestly, and consumers aren't taken advantage of. Previously known as the Financial Services Authority, the FCA ensures that authorised businesses follow rules and standards when selling their products and services on the market.
The FCA exists to ensure that: customers are treated fairly, integrity is maintained in the financial services industry and competition is alive and healthy. The latter is important to ensure that no single company monopolises the financial markets, using its power against consumers' best interests. The FCA is a relatively new public body, and was previously known as the Financial Services Authority. It was created in 2013 by the UK government, to provide better oversight and regulation over financial markets and firms.
The firms the FCA regulate also fund the organisation. To make the FCA an effective organisation, they're granted power by the government to apply and enforce regulations and legislation such as the Financial Services Act. They're also allowed to act accordingly when individuals or businesses break the rules, by applying investigations and bans.
We’ve used the term ‘firms’ to cover a broad range of financial service businesses, but FCA focuses most of their efforts on the supervision of banks and financial institutions. This is done to ensure banks treat their customers fairly, they’re not operating with large risk, and they're competing legally. Beyond fairness for customers, the FCA's regulations support anti-money laundering (AML) by providing standards and customer due diligence requirements. These vary from one market and service to another, but typically involve Know Your Customer (KYC) procedures to help firms manage risk and verify the clients they work with.
Why Does the Financial Conduct Authority (FCA) Matter?
The FCA is an organisation responsible for regulating services and companies within the UK financial system. The rules they put in place mean financial service firms have to operate within boundaries so that customers are protected from risk. An additional benefit of this regulation is that potential customers can easily trust a business authorised by the FCA, because they know they work fairly and are under supervision.
The FCA is also an integral part of protecting the UK from money laundering, sanctioned entities and other forms of financial crime by outlining the procedures these firms need to take to verify potential customers. Unfortunately, the financial services industry is a target for major crimes that affect the market and the economy, so it must be regulated properly. The FCA also regulates the consumer credit industry, which they took over from the Office of Fair Trading in 2014, which means they play an important role in maintaining fairness for customers and their future needs.
What Power Does the Financial Conduct Authority (FCA) Have?
The powers and sequence of the FCA’s governance are summarised below:
- The FCA can run an investigation of organisations and people that they may deem as suspicious for one reason or another.
- If the firms are found to break the rules, the FCA may first ban their financial products for a year while further investigating and considering an indefinite ban.
- Once they instruct a ban on a product, these firms have to instantly withdraw or change the products and promotions found to be misleading or not meeting the minimum requirements.
- The firms also have to publish this result publicly, which can be damaging and a big motivation to follow the regulations given by the FCA.
When performing an investigation, the FCA often freezes the assets of firms or individuals, even if they’re only under investigation. This is a way to minimise the chance of customers being treated unfairly, even though firms may be found not guilty later.
What Does it Mean to be FCA Authorised?
To legally offer their services and products in the UK, financial services companies have to be authorised by the FCA. This also includes investment companies and consumer credit firms. These firms must first register as an operating company and then meet the FCA’s required standards for authorisation.
Once authorisation is approved, these financial services firms fall within the FCA's register so when it's believed they may not be meeting the standards, they can be investigated. From here, the powers discussed earlier may be enforced and the FCA can order authorised companies to stop trading, withdraw specific products, pay compensation to customers or prosecute the firm. So making sure you maintain your customer due diligence and keep your offerings aligned to their standard is an important part of your operations as a financial service provider.
Why is the Financial Conduct Authority Important?
These requirements also protect firms by providing the guidance to understand their potential customers and highlight any risks: such as a politically exposed person (PEP), people on sanctions lists or financial criminals. Nexis Diligence+™ exists to help you easily manage your requirements and remain a trusted provider in your field without the taxing administration and compliance procedures.
The FCA Register
Companies that are authorised and regulated by the Financial Conduct Authority, currently or in the past, can be found on the FCA register. This documents regulated firms’ contact details, what they’re authorised for and more information about their offerings. The register also highlights the firms that have committed financial scams to warn potential customers.
This can help customers build trust with financial firms. By joining the register while abiding by FCA standards, you can attract customers by offering complete transparency and legitimacy.
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