UNITED KINGDOM

FINANCIAL SERVICE AUTHORITY

Answered By:
Rachmadevi Desri Rizky
Astrid Paramitha
Yonnika Maharani


INTERNATIONAL PROGRAM FACULTY OF LAW
ISLAMIC UNIVERSITY OF INDONESIA
2013/2014

I. INTRODUCTION
The Chancellor of the Exchequer announced the reform of financial services regulation in the
UK and the creation of a new regulator on 20 May 1997. The Chancellor announced his decision
to merge banking supervision and investment services regulation into the Securities and
Investments Board (SIB). The SIB formally changed its name to the Financial Services Authority
in October 1997.
The first stage of the reform of financial services regulation was completed in June 1998, when
responsibility for banking supervision was transferred to the FSA from the Bank of England. In
May 2000 the FSA took over the role of UK Listing Authority from the London Stock Exchange.
The Financial Services and Markets Act, which received Royal Assent in June 2000 and was
implemented on 1 December 2001, transferred to the FSA the responsibilities of several other
organizations:
- Building Societies Commission
- Friendly Societies Commission
- Investment Management Regulatory Organisation
- Personal Investment Authority
- Register of Friendly Societies
- Securities and Futures Authority
In addition, the legislation gives us some new responsibilities in particular taking action to
prevent market abuse.
In October 2004, following a decision by the Treasury, we took on responsibility for mortgage
regulation. In January 2005, to implement the Insurance Mediation Directive and in accordance
with a Government announcement in 2004 we took on regulation of general insurance business.
In June 2010, the Chancellor announced the governments intention to replace the FSA as a
single financial services regulator with two new successor bodies, and restructure the UKs
financial regulatory framework.
On 1 April 2013, the FSA was abolished and the majority of its functions transferred to two new
regulators: the Financial Conduct Authority (FCA) and the Prudential Regulation Authority
(PRA). On the same date, the Bank of England (BoE) took over the FSA's responsibilities for
financial market infrastructures and the Financial Policy Committee (FPC) was established on a
statutory basis.
II. EXPLANATION
a. Law and Regulation
The FS Act the primary legislation containing the core provisions for the government's
structural reforms, received Royal Assent on 19 December 2012.
The FS Act largely amended existing legislation, and made extensive changes to the
Financial Services and Markets Act 2000 (FSMA), as well as to other legislation
including the Bank of England Act 1998 and the Banking Act 2009. The government
decided to retain FSMA as the main legislative framework for UK financial services
regulation and most of the reforms made by the FS Act took the form of amendments to
FSMA.

b. Objective
i. Financial Conduct Authority (FCA)
The FCA has a strategic objective and three operational objectives:
The strategic objective is to ensure that the "relevant markets" function well.
The operational objectives are:
1) to secure an appropriate degree of protection for consumers;
2) to protect and enhance the integrity of the UK financial system; and
3) to promote effective competition in the interests of consumers.
The FCA is also obliged to discharge its general functions in a way that promotes
competition.
ii. Prudential Regulation Authority (PRA)
The PRA has a general objective: to promote the safety and soundness of
regulated firms. The PRA seeks to meet this objective primarily by seeking to
minimize any adverse effects of firm failure on the UK financial system and by
ensuring that firms carry on their business in a way that avoids adverse effects on
the system. When dealing with insurers, the PRA must also have regard to an
additional "insurance objective": contributing to the securing of an appropriate
degree of protection for those who are or may become policyholders.

c. Functions
i. Financial Conduct Authority (FCA)
1. As Regulator
To promote innovation and healthy competition between financial services
firms. It help them keep to the rules and maintain high conduct standards.
FSA intervene when firms:
- treat consumers unfairly
- behave in ways that risk the integrity of the market
FSA supervise firms differently depending on their size and the nature of their
business. This includes:
- continuous conduct assessment for large firms and regular assessment
for smaller firms
- monitoring products and other issues to ensure firms play fair and
dont compromise consumer interests
- responding quickly and decisively to events or problems that threaten
the integrity of the industry
- ensuring firms compensate consumers when necessary
2. As Protector
Regulate the financial services industry to ensure firms stick to the rules and
consumers dont fall victim to scams or get tied in to unfair contracts. This
section explains what we do to protect both the industry and consumers.
3. As Legal Enforcer
The job of enforcement is to help the FCA change behavior by making it clear
that there are real and meaningful consequences for those firms or individuals
who dont play by the rules.
4. As Championing
To ensure consumers get a fair deal, to regulate financial advisers and to make
firms train their staff well.
5. As Promotors of Effective Competition
Competition can lead to lower prices, greater innovation, better design, better
quality and wider choice, which ultimately leads to consumers being better off
and growth in the economy.
ii. Prudential Regulation Authority
The PRA, a subsidiary of the BoE, is responsible for micro-prudential regulation
of systemically important firms, including banks, insurers and certain investment
firms. These firms are referred to as PRA-authorised firms and also as dual-
regulated firms because, while the PRA regulates prudential issues, the FCA acts
as these firms' conduct regulator.

d. Structure
i. Financial Conduct Authority (FCA)
Our divisions are:
Authorizations: which assesses and processes applications to the FCA
Supervision: which is responsible for the conduct supervision of the firms
we regulate
Markets: which ensures markets remain stable, efficient and resilient
Policy, Risk and Research: which identifies and assesses risks and makes
sure that our policies protect consumers and eliminate poor practice
Enforcement and Financial Crime: which takes action against firms and
individuals who are unethical in their practice, investigates misconduct and takes
steps to reduce financial crime
Operations: which works in close partnership with all FCA divisions to
offer high-quality support services including information systems HR, finance and
operations services
Communications and International: which helps to build confidence in,
and understanding of, the FCA in the UK and abroad
Corporate Services: which supports the FCA Board and its Committees,
including the Regulatory Decisions Committee. Corporate Services also supports
the Independent Statutory Panels, the Board of Pension Plan Trustee and the Staff
Consultative Committee, as well as administering the Complaints Scheme.
The Board
The FCA Board keeps a close watch on how our business is operating and holds
FCA accountable for the way they work. It is made up of executive and non-
executive members.
The Board has several committees to which it delegates certain functions /
powers, which are:
Audit Committee
The Audit Committees responsibilities are reviewing and providing assurance to
the Board on matters including the effectiveness of the FCAs internal controls,
risk management and mitigation strategies, the integrity of the financial
statements in the annual accounts and the statements that relate to financial
controls and internal risk, and for oversight of the external audit process.
Risk Committee
The Risk Committee is responsible for the review and oversight of the external
risks to the FCAs statutory objectives; making recommendations to the Board in
relation to such risks; the suitability of the scope and coverage of the mitigation
used to reduce the potential impact of such risks; and the effective operation of
the Regulatory Decisions Committee and the Listing Authority Review
Committee.
Remuneration Committee
The Remuneration Committee is responsible for determining the remuneration of
the executive members of the Board and certain very senior staff members.
Oversight Committee
This Board Committee was established to provide support and advice to the Board
on its relationship with the Money Advice Service (MAS) and its obligations
under FSMA in respect of MAS. The Board has agreed that the Committee should
be retained as a standing committee of the Board with the ability to extend its
scope to carry out other assignments as specifically mandated by the Board, for
example, to review the Plan and Budget of the Financial Ombudsman Service or
the Financial Services Compensation Scheme from time to time if required.
Regulatory Decisions Committee
The Regulatory Decisions Committees functions are:
a. To decide whether to give statutory and other notices in cases which are
described as within its scope by the Handbook, any regulatory guide or legislation
(whether primary or subordinate legislation) including in particular DEPP and the
Enforcement Guide (EG);
b. To take decisions associated with the matters which are within its scope;
and
c. To receive representations, whether written or oral.


ii. Prudential Regulation Authority (PRA)
The PRA's board includes the Governor of the BoE as chairman and the BoE
Deputy Governor for prudential regulation as chief executive. The FCA chairman
also sits on the PRA board.

e. How does it Work on Capital Market?
The principal focus of the PRAs co-ordination with the FCA will be at the firm-specific
level. Specific consideration will also be given to common standards and rules for risks
which are directly relevant to both the FCA and PRAs responsibilities, e.g. governance
and controls.
FSMA, as amended, does not set out operational arrangements for each of the authorities,
e.g. in relation to whether the PRA and the FCA will use the same reporting system. As a
result, dual-regulated firms will have to adapt to both. It will be for the FCA and PRA to
determine whether there is scope for sharing services (which we assume will follow at a
later stage, closer to implementation). It will be necessary to wait to see what
arrangements (if any) will be put in place by the FCA and PRA in relation to overlapping
services and functions (particularly in light of the principle in FSMA that the PRA and
the FCA must each use their resources in the most efficient and economic way).
The potential areas of overlap between the FCA and PRA are most prevalent in relation
to dual-regulated firms, i.e. those firms that will be subject to regulation by the FCA (in
relation to conduct matters) and by the PRA (in relation to prudential matters), for
example banks and building societies. It will be essential in the new architecture to
ensure that a firm is not subject to conflicting rules or instructions from each of the PRA
and the FCA. The Government has recognized this and it has been proposed that the FCA
and the PRA will put in place arrangements for coordinating their operations that will
impact dual-regulated firms, including:
- supervisory colleges;
- close cooperation during the authorization process;
- provision for the FCA to notify the PRA before taking enforcement action;
- consideration of how best to put in place common standards and rules for risks
which are directly relevant to both authorities responsibilities;
- co-ordination in setting rules and policy of each of the PRA and the FCA;
- co-ordination in relation to the regulation of with-profits insurance; and
- a requirement that each of the FCA and the PRA must include an account of how
they have coordinated and cooperated in their annual accounts.
Secondary legislation may also require that a matter relating to dual-regulated firms is a
responsibility of the FCA or the PRA.
It is expected that much of the detail on how the PRA and the FCA will co-ordinate the
regulation of dual-regulated firms will follow the date of implementation of the new
architecture and develop as a matter of practice.