A debate on the Financial Conduct Authority (FCA) is to be held on 1 February 2016. This note provides some background to potential issues which may be raised. Further information can be found in another Library Note (CBP-07234)Jump to full report >>
A broad ranging debate on the Financial Conduct Authority (FCA) is to be held on 1 February 2016. This note provides some background to potential issues which may be raised. Further information can be found in another Library Note.
Section 6 of the Financial Services Act 2012 established three new regulatory bodies as a response to the financial crisis of 2008. One was the Financial Conduct Authority (FCA), which assumed most of the functions of its predecessor the Financial Services Authority (FSA). The FSA had been heavily criticised for its supervisory failings pre-crisis.
The FCA is responsible for overseeing what firms do, their conduct, and how they carry out their business. It regulates both the very largest and the smallest financial service firms. Some firms (deposit takers) are regulated by the PRA for their soundness and by the FCA for their conduct.
It has a strategic objective: ensuring that the relevant markets function well and three operational objectives:
It is the last of these points where the FCA finds itself being criticised the most often, when problems arise and it finds itself unable to sort out ‘scandals’.
Failure to ‘sort things out’ can be due to a variety of reasons.
The scope of the financial regulator’s responsibilities has widened significantly since it was introduced by the Financial Services and Markets Act 2000. Often the expansion is due to the emergence of a new scandal (equity release for example). The regulator has less leverage to put things right if the activity was outside its scope when the problems began.
Financial transactions can be very complicated and slow to mature (pensions, endowment mortgages). Determining fault can be much harder than identifying victims.
The FCA has struggled, for different reasons, to find a solution which meets the demands of all complainants to least two rather intractable issues.
Interest rate swaps (Interest Rate Hedging Products (IRHP))
This ‘scandal’ is complex, indeed it is the very complexity that is at the heart of the claims for compensation. In short:
More detailed information can be found in another Library Brief.
Significant redress has been achieved (£2.1 billion has been paid in compensation) but many businesses face existential threats in the absence of a resolution of their situation.
Connaught income fund
Changes made since 2014 should better protect ordinary retail investors in the future.
There was an adjournment debate on this on 12 January 2016, see here.
Treasury Select Committee hearing
The Committee held an evidence session on 20 January 2016 which proved an opportunity to discuss additional, broader, issues such as the resignation of the previous head of the FCA; the cancellation of a review into banking culture; and issues arising from the Bank of England Bill about changes to the Senior Managers Regime.
 HC Deb 4 December 2014 c477
Commons Briefing papers CBP-7488
Author: Tim Edmonds
Topic: Financial services