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The Financial Services Authority (FSA) was a
quasi-judicial body A quasi-judicial body is non-judicial body which can interpret law. It is an entity such as an arbitration panel or tribunal board, that can be a public administrative agency but also a contract A contract is a legally enforceabl ...
accountable for the
regulation Regulation is the management of complex systems A complex system is a system composed of many components which may interaction, interact with each other. Examples of complex systems are Earth's global climate, organisms, the human brain, infra ...
of the
financial services industry Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of Production (economics), production, Distribution (economics), distribution, and Consumption (economics) ...
in the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the European mainland, continental mainland. It comprises England, Scotlan ...
between 2001 and 2013. It was founded as the Securities and Investments Board (SIB) in 1985. Its board was appointed by the
Treasury A treasury is either *A government department related to finance and taxation, a Finance minister, finance ministry. *A place or location where treasure, such as currency or precious items are kept. These can be State ownership, state or roya ...
, although it operated independently of government. It was structured as a
company limited by guarantee In British, Australian, Bermudian, Hong Kong and Irish company law (and previously New Zealand), a company limited by guarantee (CLG) is a type of corporation used primarily (but not exclusively) for non-profit organisations that require juristic ...
and was funded entirely by fees charged to the financial services industry. Due to perceived regulatory failure of the banks during the
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of Production (economics), production, Distribution (economics), distribution, and Consumption (economics) ...
, the
UK government ga, Rialtas a Shoilse gd, Riaghaltas a Mhòrachd , image = HM Government logo.svg , image_size = 220px , image2 = Royal Coat of Arms of the United Kingdom (HM Government).svg , image_size2 = 180px , caption = Royal Arms , date_es ...
decided to restructure financial regulation and abolish the FSA. On 19 December 2012, the ''Financial Services Act 2012'' received
royal assent Royal assent is the method by which a monarch formally approves an act of the legislature, either directly or through an official acting on the monarch's behalf. In some jurisdictions, royal assent is equivalent to promulgation, while in other ...
, abolishing the FSA with effect from 1 April 2013. Its responsibilities were then split between two new agencies: the
Financial Conduct Authority The Financial Conduct Authority (FCA) is a financial regulation, financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The ...
and the Prudential Regulation Authority of the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker, and still one of the bankers fo ...
. Until its abolition, Lord Turner of Ecchinswell was the FSA's chairman and Hector Sants was CEO until the end of June 2012, having announced his resignation on 16 March 2012. Its main office was in
Canary Wharf Canary Wharf is an area of London London is the capital and List of urban areas in the United Kingdom, largest city of England and the United Kingdom, with a population of just under 9 million. It stands on the River Thames in south-eas ...
, London, with another office in
Edinburgh Edinburgh ( ; gd, Dùn Èideann ) is the capital city of Scotland and one of its 32 Council areas of Scotland, council areas. Historically part of the county of Midlothian (interchangeably Edinburghshire before 1921), it is located in Lothian ...
. When acting as the competent authority for listing of shares on a stock exchange and maintaining the
Official List The Official List (or ''UKLA Official List'') is the list maintained by the Financial Conduct Authority (acting in its capacity as thUK Listing Authority in accordance with Section 74(1) of the Financial Services and Markets Act 2000 (the Act) for ...
, it was referred to as the UK Listing Authority (UKLA).


History


SIB

The Securities and Investments Board Ltd ("SIB") was incorporated on 7 June 1985 at the instigation of the UK
Chancellor of the Exchequer The chancellor of the Exchequer, often abbreviated to chancellor, is a senior minister of the Crown within the Government of the United Kingdom, and head of HM Treasury, His Majesty's Treasury. As one of the four Great Offices of State, the Ch ...
, who was the sole member of the company and who delegated certain statutory regulatory powers to it under the then Financial Services Act 1986. It had the legal form of a company limited by guarantee (number 01920623). After a series of scandals in the 1990s, culminating in the collapse of
Barings Bank Barings Bank was a British merchant bank based in London, and one of England's List of oldest banks in continuous operation, oldest merchant banks after Berenberg Bank, Barings' close collaborator and German representative. It was founded in 1762 ...
, there was a desire to bring to an end the self-regulation of the financial services industry and to consolidate regulatory responsibilities which had been split amongst multiple regulators.


FSA

The name of the Securities and Investments Board was changed to the Financial Services Authority on 28 October 1997 and it started to exercise statutory powers given to it by the
Financial Services and Markets Act 2000 The Financial Services and Markets Act 2000c 8 is an Act of Parliament, Act of the Parliament of the United Kingdom that created the Financial Services Authority (FSA) as a regulator for insurance, investment business and banking, and the Financ ...
that replaced the earlier legislation and came into force on 1 December 2001. At that time the FSA also took over the role of the Securities and Futures Authority (SFA) which had been a self-regulatory organisation responsible for supervising the trading in shares and futures in the UK.


Abolition

On 16 June 2010, the
Chancellor of the Exchequer The chancellor of the Exchequer, often abbreviated to chancellor, is a senior minister of the Crown within the Government of the United Kingdom, and head of HM Treasury, His Majesty's Treasury. As one of the four Great Offices of State, the Ch ...
,
George Osborne George Gideon Oliver Osborne (born Gideon Oliver Osborne; 23 May 1971) is a former British politician and newspaper editor who served as Chancellor of the Exchequer from 2010 to 2016 and as First Secretary of State from 2015 to 2016 in the P ...
, announced plans to abolish the FSA and separate its responsibilities between a number of new agencies and the
Bank of England The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694 to act as the Kingdom of England, English Government's banker, and still one of the bankers fo ...
. The
Financial Conduct Authority The Financial Conduct Authority (FCA) is a financial regulation, financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The ...
would be responsible for policing the financial activities of the City and the banking system. A new Prudential Regulation Authority would carry out the prudential regulation of financial firms, including banks, investment banks, building societies and insurance companies. On 19 December 2012 the Financial Services Act 2012 received
royal assent Royal assent is the method by which a monarch formally approves an act of the legislature, either directly or through an official acting on the monarch's behalf. In some jurisdictions, royal assent is equivalent to promulgation, while in other ...
and came into force on 1 April 2013. The act created a new regulatory framework for financial services and abolished the FSA. Specifically, the Act gave the Bank of England responsibility for financial stability, bringing together macro and micro prudential regulation, and created a new regulatory structure consisting of the Bank of England's
Financial Policy Committee The Financial Policy Committee (FPC) is an official committee of the Bank of England, modelled on the already well established Monetary Policy Committee (United Kingdom), Monetary Policy Committee. It was announced in 2010 as a new body responsible ...
, the Prudential Regulation Authority and the Financial Conduct Authority.


Activities


Scope

From 14 January 2005 the FSA also regulated the motor industry, applicable when insurance products were sold in conjunction with the vehicle purchase. This regulation, which covered around 5,000 motor dealers, focused heavily on the FSA's "Treating Customers Fairly".


Statutory objectives

The Financial Services Act 2010, which was passed by Parliament on 8 April 2010, gave the FSA the additional statutory objective of "Contributing to the protection and enhancement of the stability of the UK financial system" and removed the public awareness objective.


Retail consumers

The FSA had a priority of making retail markets for financial products and services work more effectively, and so help retail consumers to get a fair deal. Over several years, the FSA developed work to raise levels of confidence and capability among consumers. From 2004, this work was described as a national strategy on building
financial capability Financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. Raising interest in personal finance is now a focus of state-run progr ...
in the UK. In June 2006, the FSA created its Retail Distribution Review (RDR) programme which they maintained would enhance consumer confidence in the retail investment market. The RDR came into force on 31 December 2012. The RDR was expected to have a significant impact on the way in which financial services are delivered to retail investors in the UK. The primary delivery mechanism of financial services to retail customers was via approximately 30,000 financial intermediaries (FIs) who were authorised and regulated by the FSA. They were expected to bear the brunt of the force of the RDR. The key elements of RDR were: # Independent advice is truly independent and reflects investors’ needs. # People can clearly identify and understand the service they are being offered. # Commission-bias is removed from the system and recommendations made by advisers are not influenced by product providers. # Investors know up-front how much advice is going to cost and how they will pay for it. # All investment advisers will be qualified to a new, higher level, regarded as equivalent to the first year of a degree The combination of these factors was expected to significantly reduce the profitability of many FI practices. In anticipation of the new regulatory environment being enforced the industry landscape is undergoing significant change. Despite the fact that many in the industry are considered to be poorly prepared for the changes coming into effect, The most significant identifiable trends are: # Consolidators buying up small firms of FIs as a result of the higher qualifications threshold and downward pressures on profitability resulting from RDR – E&Y estimate that the number of Registered Individuals will fall from 30,000 to 20,000 within the next 5 years. # IFAs are embracing the concept of
wrap account A wrap account (also known as wrap service or tax wrapper) is a means of consolidating and managing an investor's investment portfolio (finance), portfolio and financial plans. Wrap fee services are offered by many financial institutions. Often wra ...
– incumbent fund supermarkets and Life Assurance Companies are in response launching their own Wrap Platforms. # IFAs are rapidly moving from the traditional investment solution for clients: recommending a portfolio of largely equity-oriented collective investment schemes (
Unit trust A unit trust is a form of Collective investment scheme, collective investment constituted under a Trust (law), trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a ...
s and OEICs) and being paid initial and annual renewal commission by the fund provider to an outsourcing model: recommending that clients appoint a discretionary fund manager to manage the client's portfolio(s) and charging the client an annual oversight fee. A recent survey found that 89% of IFAs are considering outsourcing to discretionary managers as a result of RDR. # Several new entrants are making major in-roads into this market at the expense of the incumbent retail-oriented funds groups such as
Schroders Schroders plc is a British Empire, British multinational asset management company, founded in 1804. The company employs over 5,000 people worldwide in 32 locations around Europe, America, Asia, Africa and the Middle East. Headquartered in the Cit ...
, Gartmore,
Fidelity Investments Fidelity Investments, commonly referred to as Fidelity, earlier as Fidelity Management & Research or FMR, is an American Multinational corporation, multinational financial services corporation based in Boston, Massachusetts. The company was esta ...
etc. The larger discretionary fund managers are finding it difficult to adapt their business models to cope with these changes, given that the small average portfolio size is better suited to multi-manager (portfolio of funds) solutions, via wrap platforms, when these fund managers tend to prefer to retain custody and investing in direct equities.


2009 regulations

The Payment Services Regulations 2009 came into force on 1 November 2009 and shifted the onus onto the banks to prove negligence by the holder of
debit Debits and credits in double-entry bookkeeping are entries made in Account (accountancy), account ledgers to record changes in Value (economics), value resulting from business transactions. A debit entry in an account represents a transfer of v ...
and credit cards in cases of disputed payments. On the same date the Banking Conduct Regime commenced.


Organisation

The FSA was governed by a Board appointed by
HM Treasury His Majesty's Treasury (HM Treasury), occasionally referred to as the Exchequer, or more informally the Treasury, is a Departments of the Government of the United Kingdom, department of Government of the United Kingdom, His Majesty's Government ...
. At the time of abolition its executive chairman was
Adair Turner Jonathan Adair Turner, Baron Turner of Ecchinswell (born 5 October 1955) is a British businessman and academic and was Chairman of the Financial Services Authority The Financial Services Authority (FSA) was a quasi-judicial body accountable ...
. Hector Sants was CEO until the end of June 2012, having announced his resignation on 16 March 2012. The FSA was also provided with advice on the interests and concerns of consumers by the Financial Services Consumer Panel.


Criticisms

The FSA rarely took on wider implication cases. For example, thousands of consumers have complained to the Financial Ombudsman Service about
payment protection insurance Payment protection insurance (PPI), also known as credit insurance, credit protection insurance, or loan repayment insurance, is an insurance product that enables consumers to ensure repayment of credit if the borrower dies, becomes ill or disabl ...
(PPI) and
bank charge The term bank charge covers all charges and fees made by a bank to their customers. In common parlance, the term often relates to charges in respect of personal Transactional account, current accounts or checking account. These charges may take ma ...
s. This was despite determining that there was a problem in the selling of PPI. The FSA in an internal report into the handling of the collapse in confidence of customers of the Northern Rock Plc described themselves as inadequate. It was reported that to prevent such a situation occurring again, the FSA was considering allowing a bank to delay revealing to the public when it gets into financial difficulties. The FSA was criticised in the final report of the European Parliament's inquiry into the crisis of the Equitable Life Assurance Society. It is widely reported that the long-awaited Parliamentary Ombudsman's investigation into the government's handling of Equitable Life is equally scathing of the FSA's handling of this case The FSA ignored warning signals from Northern Rock building society and continued to allow the bank to operate without a risk mitigation programme for months before the bank's collapse. Despite heavily criticising split-cap investment trusts, in 2007 it suddenly abandoned its investigation. There were also some questions raised about the competence of FSA staff. Although one of the prime responsibilities of the FSA was to protect consumers, the FSA was active in trying to ensure companies' anonymity when they were involved in misselling activity, preferring to side with the companies that have been found guilty rather than consumers. It was announced in November 2008, that despite self-acknowledged failures by the FSA in effectively regulating the financial services industry, FSA staff would receive bonuses. On 31 May 2008, The Times confirmed that FSA staff had received £20m in bonuses for 2008/09, a 40% increase on the previous year. On 11 February 2009, FSA deputy chairman, Sir James Crosby resigned after it was revealed that he had fired a
whistleblower A whistleblower (also written as whistle-blower or whistle blower) is a person, often an employee, who reveals information about activity within a private or public organization that is deemed illegal, immoral, illicit, unsafe or fraudulent. Whi ...
, Paul Moore, who had warned of dangerous lending practices at
HBOS HBOS plc was a banking and insurance company in the United Kingdom, a wholly owned subsidiary of the Lloyds Banking Group, having been taken over in January 2009. It was the holding company for Bank of Scotland, Bank of Scotland plc, which ...
when he had been in charge of risk regulation. Lord Adair Turner, the then FSA chairman, defended the actions of the regulator on the
BBC #REDIRECT BBC
Here i going to introduce about the best teacher of my life b BALAJI sir. He is the precious gift that I got befor 2yrs . How has helped and thought all the concept and made my success in the 10th board exam. ...
's Andrew Marr show on 13 February 2009. His comments were that other regulatory bodies throughout the world, which had a variety of different structures and which are perceived either as heavy touch or light touch also failed to predict the economic collapse. In line with the other regulators, the FSA had failed intellectually by focusing too much on processes and procedures rather than looking at the bigger economic picture. In response as to why Sir James Crosby had been appointed deputy chairman when his bank
HBOS HBOS plc was a banking and insurance company in the United Kingdom, a wholly owned subsidiary of the Lloyds Banking Group, having been taken over in January 2009. It was the holding company for Bank of Scotland, Bank of Scotland plc, which ...
had been highlighted by the FSA as using risky lending practises, Lord Turner said that they had files on almost every financial institution indicating a degree of risk. Turner faced further criticism from the
Treasury Select Committee The House of Commons Treasury Committee (often referred to as the Treasury Select Committee) is a select committee (United Kingdom), select committee of the British House of Commons, House of Commons in the Parliament of the United Kingdom. The re ...
on 25 February 2009, especially over failures to spot or act on reckless lending by banks before the crisis of 2008 occurred. He attributed much of the blame on the politicians at the time for pressuring the FSA into "light touch" regulation. On 17 April 2009, a whistleblower (former FSA employee) alleged that the FSA had turned a blind eye to the explosion in purchases of whole sale loans taken on by various UK building societies from 2005 onwards. The FSA denied the claims – "This is not whistleblowing, it is green ink" a spokesman said. "The allegations are a farrago of lies, distortions and half truths made by an obviously disgruntled former employee who clearly has an axe to grind. It does not paint a realistic picture of our supervision of building societies." On 18 August 2012, the Treasury Select Committee criticised the FSA for its poor enforcement of the
LIBOR The London Inter-Bank Offered Rate is an interest-rate average calculated from estimates submitted by the leading banks in London London is the capital and List of urban areas in the United Kingdom, largest city of England and the Unite ...
rate setting rules.


More principles-based regulation

There were suggestions that the FSA stifled the UK financial services industry through over-regulation, following a leaked letter from Prime Minister
Tony Blair Sir Anthony Charles Lynton Blair (born 6 May 1953) is a British former politician who served as Prime Minister of the United Kingdom from 1997 to 2007 and Leader of the Labour Party (UK), Leader of the Labour Party from 1994 to 2007. He pr ...
during 2005. This incident led Callum McCarthy, then Chief Executive of the FSA, to formally write to the Prime Minister asking him to either explain his opinions or retract them. The Prime Minister's criticisms were viewed as particularly surprising since the FSA's brand of light-touch financial regulation was typically popular with banks and financial institutions in comparison with the more prescriptive rules-based regulation employed by the US
Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agencies of the United States government, independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary pu ...
and by other European regulators; by contrast, most critiques of the FSA accused it of instigating a regulatory "race to the bottom" aimed at attracting foreign companies at the expense of consumer protection. The FSA countered that its move away from rules-based regulation towards more principles-based regulation, far from weakening its consumer protection goals, could in fact strengthen them: "''Our Principles are rules. We can take enforcement action on the basis of them; we have already done so; and we intend increasingly to do so where it is appropriate to do so.''" As an example, the enforcement action taken in late 2006 against firms mis-selling
payment protection insurance Payment protection insurance (PPI), also known as credit insurance, credit protection insurance, or loan repayment insurance, is an insurance product that enables consumers to ensure repayment of credit if the borrower dies, becomes ill or disabl ...
was based on their violation of principle six of the FSA's Principles for Business, rather than requiring the use of the sort of complex technical regulations that many in financial services find burdensome.


Enforcement cases

The FSA was criticised for its supposedly weak enforcement program. For example, while FSMA prohibits
insider trading Insider trading is the trading of a public company's stock or other security (finance), securities (such as bond (finance), bonds or Option (finance), stock options) based on material, nonpublic information about the company. In various countries ...
, the FSA only successfully prosecuted two insider dealing cases, both involving defendants who did not contest the charges. Likewise, since 2001, the FSA only sought insider trading fines eight times against individuals and companies it regulated, despite the FSA's own studies indicating that unexplained price movements occur prior to around 25 percent of all UK
corporate merger Mergers and acquisitions (M&A) are business transactions in which the ownership of companies A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a ...
announcements. After the HBOS insider trading scandal, the FSA informed MPs on 6 May 2008 that they planned to crack down on inside trading more effectively and that the results of their efforts would be seen in 2008/09 On 22 June, the Daily Telegraph reported that the FSA had wrapped up their case into HBOS insider trading and no action would be taken. On 26 June, the HBOS chairman said that "There is a strong case for believing that the UK is exceptionally bad at dealing with
white-collar crime The term "white-collar crime" refers to financially motivated, nonviolent or non-directly violent crime In ordinary language, a crime is an unlawful act punishable by a state or other authority. The term ''crime'' does not, in modern cr ...
". On 29 July 2008, however, it was announced that the Police, acting on information supplied by the FSA, had arrested workers at UBS and JP Morgan Cazenove for alleged insider dealing and that this was the third case within a week. A year after the
subprime mortgage crisis The United States subprime mortgage crisis was a multinational financial crisis that occurred between 2007 and 2010 that contributed to the Financial crisis of 2007–2008, 2007–2008 global financial crisis. It was triggered by a large decline ...
had made global headlines, the FSA levied a record £900,000 on an IFA for selling subprime mortgages.


Actions relating to the 2007—2009 credit crisis

The FSA was held by some observers to be weak and inactive in allowing irresponsible banking to precipitate the credit crunch which commenced in 2007, and which has involved the shrinking of the UK housing market, increasing unemployment (especially in the financial and building sectors), the public acquisition of Northern Rock in mid-February 2008, and the takeover of HBOS by Lloyds TSB. On 18 September 2008, the FSA announced a ban on
short selling In finance, being short in an asset means investing in such a way that the investor will profit if the Market value, value of the asset falls. This is the opposite of a more conventional "Long (finance), long" Position (finance), position, wh ...
to reduce volatility in difficult markets lasting until 16 January 2009. Certainly, the FSA's implementation of
capital requirement A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simulta ...
s for banks was lax relative to some other countries. For example, it was reported that Australia's
Commonwealth Bank The Commonwealth Bank of Australia (CBA), or CommBank, is an Australian multinational corporation, multinational bank with businesses across New Zealand, Asia, the United States and the United Kingdom. It provides a variety of financial services ...
is measured as having 7.6% Tier 1 capital under the rules of the
Australian Prudential Regulation Authority The Australian Prudential Regulation Authority (APRA) is a statutory authority of the Government of Australia, Australian Government and the Prudential regulation, prudential regulator of the Australian financial services industry. APRA was estab ...
, but this would be measured as 10.1% if the bank was under the jurisdiction of the FSA. In March 2009, Lord Turner published a regulatory review of the global financial crisis. The review broadly acknowledges that 'light touch' regulation had failed and that the FSA should concentrate on macroeconomic regulation as well as scrutinising individual companies. The review also proposed cross-border regulation of banks. There were no further promises to improve consumer protection or to directly intervene against financial institutions who treat their customers badly. The review was reportedly met with widespread relief in the city of London where firms had feared a 'revolution' in the way that they would be regulated.


See also

*
Financial regulation Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the stability and integrity of the financial system. This may be handled ...
*
Financial Conduct Authority The Financial Conduct Authority (FCA) is a financial regulation, financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The ...
* ORRF Risk Research Forum * Prudential Regulation Authority * Securities commission


References


External links


Money Advice ServiceHBOS whistleblower concerns over FSA
10 February 2009
European Parliament Temporary Committee of Inquiry into the Crisis of the Equitable Life Assurance SocietyThe Herald: Northern Rock to be nationalised
18 February 2008
Telegraph: Nationalising Northern Rock is right
18 February 2008
BBC News: City watchdog revises probe rules
19 July 2005
BBC News: FSA under fire after Blair speech
6 June 2005
Lawrence A. Cunningham, A Prescription to Retire the Rhetoric of 'Principles-Based Systems' in Corporate Law, Securities Regulation and Accounting (2007)Cristie L. Ford, New Governance, Compliance, and Principles-Based Securities Regulation (2007)
{{Authority control Financial services companies established in 1985 Financial services companies established in 2001 Financial services companies disestablished in 2013 Financial services in the United Kingdom Defunct financial regulatory authorities Quasi-judicial bodies Financial regulatory authorities of the United Kingdom HM Treasury Defunct public bodies of the United Kingdom 2001 establishments in the United Kingdom 2013 disestablishments in the United Kingdom Regulators of the United Kingdom Consumer protection in the United Kingdom 1985 establishments in the United Kingdom