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A Basic Guide to the Financial Conduct Authority (FCA)

Financial Institutions, Industry Regulations

WHAT IS THE FCA?

Based in London, and established in 2013, the Financial Conduct Authority (FCA) is a regulator that makes sure financial companies act fairly and protect customers.

WHAT IS THE MAIN ROLE OF THE FCA?

The FCA’s main role is to ensure that markets and financial systems are sound, stable and resilient. It ensures that financial markets work well, not only for individuals and businesses, but for the economy as a whole. The FCA works closely alongside the Prudential Regulation Authority (PRA), the regulator of more than 1,500 banks, building societies, credit unions, insurers, and large investment firms.

HOW DOES THE FCA PROTECT CONSUMERS?

In the UK, virtually every adult is a consumer of financial services, using products from bank accounts, mortgages, and loans, to savings, credit cards, and pensions.

One of the main objectives of the FCA is to use their powers to protect consumers by ensuring that businesses and markets adhere to high standards of consumer protection. Consumers can expect the support they need, , easy to understand communications, and products and services that not only meet their needs but also offer fair value.

Before a business can enter the financial market, it must meet the standards and requirements determined by the FCA. This is the first step towards protecting consumers, after which, businesses are monitored to ensure they continue to meet those standards.

The FCA also helps people understand some of the most common risks they might come across when using financial products and services. This might be publishing warnings about businesses that are operating without authorisation, or helping consumers understand the different types of risks out there, and ways in which they can protect themselves.

HOW DOES THE FCA ENHANCE MARKET INTEGRITY?

The FCA fosters a robust and transparent financial system, where consumers can put their full trust in the markets and where businesses can thrive.

A main objective of the FCA is to protect and enhance the integrity of the UK financial system by ensuring that the markets are not only effective, but also efficient and resilient. This requires high standards of accountability and integrity and ensuring that business models and activities do not undermine market trust or contribute towards risks. The FCA promotes transparency by supervising market infrastructure, and by addressing potential harm at the earliest stage possible.

HOW DOES THE FCA PROMOTE COMPETITION?

Competition is the process of rivalry between suppliers to survive and grow, and to attract and keep more customers, and is a vital cog in the wheel of economic growth.

The FCA promotes this competition in the interest of both consumers and businesses alike. When competition works well, it drives down costs and prices, drives up service standards and quality, increases access to financial services, and drives productivity and economic growth. On the other hand, when it doesn’t work well, it has the capability of causing harm to consumers, businesses and to the wider economy.

In order to enhance competition, the FCA do the following three things:

  • Analyse market structure and dynamics through market studies – intervening where necessary to improve customer outcomes
  • Investigate anti-competitive behaviour – under the Competition Act 1998
  • Implement regulation – with the aim of supporting competition in the consumers’ interests

One aspect is about supporting consumer choice, including the choice to move from an unsatisfactory supplier to a better one. This applies pressure on businesses who know  their customers can easily switch, should they feel that their products and services are not meeting their needs.

But it’s not all about lower prices or more switching. The work of the FCA is also about keeping markets open to entry and innovation, tackling anti-competitive conduct, and getting involved to ensure that competitive forces drive good outcome for consumers, and protecting them when certain markets fail them.

Overall, promoting competition is integral to the FCA’s mission. It ensures that the market favours consumer interests, while aligning with broader regulatory duties. This not only bolsters the UK’s international competitiveness but also supports the overall growth of the financial industry.

HOW DOES THE FCA HANDLE MISCONDUCT?

The FCA rigorously monitors businesses across the UK, and will take action against any that fail to comply with the FCA rules. This may involve imposing fines, stopping them from trading or securing compensation for consumers.

WHAT ARE THE FCA’S PRIORITIES FOR THE COMING YEARS?

The FCA will soon be heading toward the end of a three-year strategy that began in 2022 and focused on three main areas: Preventing Serious Harm, Raising Standards, and Promoting more Competition.

The areas of focus for 2024/2025 include:

Protecting Customers – Continue to test higher standards, support long-term financial wellbeing for consumers, work to ensure pension products deliver value for money, ensure that consumers better engage with their pensions and develop the use of AI to help prevent fraud, push for changes to protect customers online (e.g. Getting Google to only allow FCA-registered businesses to advertise financial products).

Greater Access to Cash – To act where it is found or anticipated that there will be shortages in cash access services, to ensure a reasonable provision of cash withdrawal and deposit services for both personal and business current accounts across the UK

Ensuring Market Integrity – Monitor risks in markets and act where appropriate, finalise far-reaching capital market reforms, lead the debate of how the right form of regulation can benefit the UK markets

Promoting Effective Competition – Promote competition to deliver good outcomes for customers, identify where more effective competition can better deliver fair outcomes

International Competitiveness & Growth – Facilitate international competitiveness of the UK economy, improve the attractiveness and global reach of UK wholesale markets, provide opportunities for financial services companies to invest, innovate and expand in the UK

Moving forward with a growing team and a clear vision, the FCA remains committed to keeping a fair, transparent, and competitive financial environment.