What does the Financial Conduct Authority (FCA) do?

The main goals of the FCA are based on three objectives outlined in the Financial Services and Markets Act (FSMA)⁴:

• Ensuring the safety of customers: The FCA ensures that financial products and services are clear and cater to customer requirements by overseeing how companies communicate with customers and conduct sales and service delivery activities. This protects consumers from misrepresentation and unethical behaviors while ensuring transparency regarding fees.

• Maintaining the integrity of the market: Ensuring trust in the financial system is essential for maintaining stability. The FCA's efforts involve identifying and stopping activities like insider trading, market manipulation, and fraudulent behavior, aiming to establish fair competition among all market participants.

• Encouraging healthy competition: The FCA promotes competition to benefit consumers through innovative products and improved services at affordable prices. It also strives to make it easier for new companies to enter the market, creating a dynamic financial landscape.

The FCA adopts a proactive stance by focusing on high-risk areas that impact consumers and markets the most. Its framework consists of three primary functions:

• Authorization: Prior to conducting business operations in the UK, companies are required to satisfy criteria and obtain approval from the FCA. This process includes assessing the company's financial soundness and governance structure, ensuring adherence to regulatory standards.

• Supervision: Once authorized, companies undergo ongoing scrutiny to uphold FCA guidelines⁵ effectively and ethically. This involves evaluations of internal procedures, assessments of customer engagements, and confirmation of strict adherence to anti-money laundering (AML) rules⁶.

• Enforcement: Companies that breach FCA regulations can face enforcement measures, including fines, bans, or even criminal charges. For instance, in 2022, significant penalties were imposed on companies failing to fulfill their duties, highlighting the FCA's commitment to ensuring accountability.

The FCA regulates a variety of activities, making it one of the most extensive regulatory bodies globally. Key focus areas include:

• Financial Institutions: The FCA oversees banks, investment firms, insurers, and payment providers to ensure ethical operations and responsible customer service.

• Consumer Credit: The FCA sets guidelines for companies offering credit services, such as loans and credit cards, to protect consumers from predatory practices and excessive charges.

• Cryptocurrency: Recognizing the risks associated with digital currencies, the FCA oversees cryptocurrency companies⁷ by implementing rigorous anti-money laundering protocols and promoting transparency within this evolving industry.

• Preventing Financial Crimes: In partnership with bodies like the National Crime Agency (NCA)⁸, the FCA combats financial crimes by mandating companies to establish AML initiatives, conduct due diligence, and report suspicious transactions or behaviors.

The FCA continually evolves to address emerging risks and challenges, demonstrating flexibility and dedication to protecting consumers and markets. Recent initiatives include:

• Consumer Duty: Introduced in 2023, Consumer Duty⁹ aims to raise standards for financial institutions by emphasizing customer well-being and ensuring transparent and equitable outcomes.

• Operational Resilience: The FCA underscores the importance of operational resilience, ensuring companies can withstand and recover from disruptions like cyberattacks or economic crises.

• Green Finance: With a growing emphasis on sustainability, the FCA has developed guidelines for green finance, enhancing clarity in environmental, social, and governance (ESG) investments, enabling consumers to make informed choices.

Amongst others, the FCA encounters the following three challenges in fulfilling its duties amid a rapidly changing financial landscape:

• Technological Innovation: Advances in technology introduce regulatory challenges, with innovations like cryptocurrencies and fintech requiring adaptive oversight. Cross-border financial offenses further complicate enforcement actions.

• Resource Limitations: With an increasing number of companies under its purview, the FCA must manage resources effectively to address potential risks. Despite these challenges, the FCA continues to adapt by leveraging technology and fostering collaboration to enhance its regulatory framework.

• Cross-Border Financial Offenses: Cross-border financial offenses pose significant challenges for the FCA, as criminals exploit jurisdictional gaps to launder money and evade scrutiny. Tackling these offenses requires enhanced international collaboration, advanced technology, and robust monitoring systems.

The financial industry is going through changes due to advancements in technology and evolving customer preferences. The FCA has shown its ability to adjust by creating rules that strike a balance between encouraging innovation and safeguarding consumer interests. By introducing programs like the Sandbox¹³ in 2016, the FCA enables companies to try out new financial offerings in a monitored setting.

This strategy has not only established the UK as a player in fintech but also guarantees that newly introduced financial services comply with regulations. The Sandbox program has been helpful to more than 150 companies in trying out ideas like payment systems based on blockchain and automated platforms for investment advice. In this effort, the FCA shows its dedication to encouraging innovation and upholding market standards. The regulatory body has also issued guidelines tailored for companies utilising intelligence and machine learning in services to guarantee a responsible and ethical deployment of these technologies.