This essay will discuss: why financial services need regulated in the United Kingdom, Prudential Regulation Authority (PRA), Financial Conduct Authority (FCA), Financial Services Authority (FSA) and a short comparison between the old regulator and the new one. The main areas this essay will comment on will be why regulation is needed and the current regulators the PRA and FCA. It will also discuss the extent to which regulators protect consumers of the United Kingdom financial system. Regulation is defined as “The imposition by a government of controls over the decisions of individuals or firms. It often refers to the control of industries in which there is monopoly or oligopoly.” (Oxford, 2008)
The need for regulation in Financial Services is crucial because if there were no regulation there would be free reign of the Financial Services industry. This could lead to industry wide corruption of a scale would be catastrophic to the global economic system. Regulation is critical to prevent the Financial Services industry from self-destructing. In reality, the previous regulator the FSA had the view of level of protection it should provide; help in identifying, reducing prudential risk, bad faith risk and other types of unsuitability risk. Thus, it should have no responsibility to protect consumers from performance risk, which is inherent in all investment markets. (RFS, 2014) Objective-led Financial Regulation - The statutory objectives have been used as a way of setting out what the single regulator previously did but some critics said that the FSA’s scope was too big unwieldy and contradictory in some cases. Some academics have concluded that the purpose of regulation tends to categorise it into three key areas, which are systemic stability, dependability of institutions and markets and consumer protection. The Financial Services Compensation Scheme FSCS is to protect consumers from the event that a financial institution may fail. …show more content…
This can also be known as a fund of last resort for all customers of financially regulated firms, the FSCS pay compensation to customers if the firm is unlikely or unable to pay claims against it. FSCS is independent of the government and the finance industry, which was set up under the Financial Services and Markets Act 2000 although they did not come into powers until 01/12/01. The FSCS covers business conducted and authorised by the PRA and FCA to protect the rights of consumers. (FSCS, 2000) The banking conduct of business sourcebook states that the consumer must receive full information on the product or service up front so that they may make an informed decision for example at the outset of the banker/consumer relationship. The prospective consumer has to be given the terms and conditions of the contract for the bank account in good time before the customer is bound by them. (Chartered Banker, 2013) This is also part of FSCS mentioned above. According to Ambler & Butler they discuss that with the new regulators “the functions will inevitably overlap, collide and also leave gaps where each think the other should be dealing with the matter just as we saw with the ‘tripartite’ regulatory partners. …show more content…
(Ambler & Butler, 2012)
The Financial Ombudsman Service is one of the main sources of protection other than the FCA and the PRA, which deals with complaints, which have not been resolved to the consumer’s standards by the organisation. The organisation, which the consumer has made the complaint against. There are a few procedures that consumers have to go through before the Ombudsman can take on the complaint there is a six-month time limit from the date that has to be filed within.
The Financial Conduct Authority has a an emphasis on supervision of Financial Services firms in which they have given four new supervision categories stated in a speech from Clive Adamson former Director of Supervision at the FSA, he states that these categories are sorted to their impact on consumers and the market while recognising that there is not a one-size-fits-all approach. (Adamson, 2013) The first category is C1, which is for the largest firms with large client assets whereas C4 firms are smaller firms such as Independent Financial Advisors. The FCA also uses a principle based approach for regulation, the regulator has left it to firms that they are adopting a Treating Customers Fairly approach through their documented procedures and outcomes for example in March 2014
The need for regulation in Financial Services is crucial because if there were no regulation there would be free reign of the Financial Services industry. This could lead to industry wide corruption of a scale would be catastrophic to the global economic system. Regulation is critical to prevent the Financial Services industry from self-destructing. In reality, the previous regulator the FSA had the view of level of protection it should provide; help in identifying, reducing prudential risk, bad faith risk and other types of unsuitability risk. Thus, it should have no responsibility to protect consumers from performance risk, which is inherent in all investment markets. (RFS, 2014) Objective-led Financial Regulation - The statutory objectives have been used as a way of setting out what the single regulator previously did but some critics said that the FSA’s scope was too big unwieldy and contradictory in some cases. Some academics have concluded that the purpose of regulation tends to categorise it into three key areas, which are systemic stability, dependability of institutions and markets and consumer protection. The Financial Services Compensation Scheme FSCS is to protect consumers from the event that a financial institution may fail. …show more content…
This can also be known as a fund of last resort for all customers of financially regulated firms, the FSCS pay compensation to customers if the firm is unlikely or unable to pay claims against it. FSCS is independent of the government and the finance industry, which was set up under the Financial Services and Markets Act 2000 although they did not come into powers until 01/12/01. The FSCS covers business conducted and authorised by the PRA and FCA to protect the rights of consumers. (FSCS, 2000) The banking conduct of business sourcebook states that the consumer must receive full information on the product or service up front so that they may make an informed decision for example at the outset of the banker/consumer relationship. The prospective consumer has to be given the terms and conditions of the contract for the bank account in good time before the customer is bound by them. (Chartered Banker, 2013) This is also part of FSCS mentioned above. According to Ambler & Butler they discuss that with the new regulators “the functions will inevitably overlap, collide and also leave gaps where each think the other should be dealing with the matter just as we saw with the ‘tripartite’ regulatory partners. …show more content…
(Ambler & Butler, 2012)
The Financial Ombudsman Service is one of the main sources of protection other than the FCA and the PRA, which deals with complaints, which have not been resolved to the consumer’s standards by the organisation. The organisation, which the consumer has made the complaint against. There are a few procedures that consumers have to go through before the Ombudsman can take on the complaint there is a six-month time limit from the date that has to be filed within.
The Financial Conduct Authority has a an emphasis on supervision of Financial Services firms in which they have given four new supervision categories stated in a speech from Clive Adamson former Director of Supervision at the FSA, he states that these categories are sorted to their impact on consumers and the market while recognising that there is not a one-size-fits-all approach. (Adamson, 2013) The first category is C1, which is for the largest firms with large client assets whereas C4 firms are smaller firms such as Independent Financial Advisors. The FCA also uses a principle based approach for regulation, the regulator has left it to firms that they are adopting a Treating Customers Fairly approach through their documented procedures and outcomes for example in March 2014