Financial service providers, investment firms and consumer credit firms in the UK have to be authorised by the Financial Conduct Authority. In addition, banks, credit unions and insurance companies must also be regulated by the Bank of England’s Prudential Regulation Authority (PRA).
The FCA oversaw the operations of 56,000 financial firms and markets in 2016 and this number is rising. Independent of Government, it has three operational objectives, which include:
To be authorised, a firm must observe strict rules as set out by the FCA. The regulator retains the power to enforce a range of actions against both authorised and non-authorised firms. Enforcement can include the withdrawal of authorised status, the suspension of activities, the issuing of fines and the instigation of criminal prosecutions (Further details can be found in the FCA’s enforcement information guide).
In 2016 alone, fines issued by the FCA exceeded £22.2m. Each enforcement notice is published both to inform the public and to deter others from breaking the rules.
FCA authorisation can take six months and sometimes much longer – it’s a very thorough process.
Once a completed application form has been received, the FCA will appoint a case officer. This case officer works with the firm to understand its processes and procedures and to ensure that it meets the requirements laid down in the FCA Handbook. The FCA also approves the key individuals within the firm, including all directors and certain others holding key positions, such as Compliance Officers. The FCA must be comfortable that the individuals are fit and proper to take on these roles. On reaching a decision about authorisation, the FCA will write to the applicant either confirming authorisation or explaining why it has been rejected.
A fee is payable on application followed by an annual fee thereafter. To remain authorised, firms are required to file regular reports with the FCA, covering items such as client money, financial reporting and the number and types of complaints received.
The Financial Services Register is a public record that shows details of firms, individuals and other bodies that are, or have been, regulated by the PRA and/or the FCA.
The FCA states that: “Almost all firms offering financial services in the UK must be authorised by us. You should only deal with authorised firms.”
However, it’s always recommended that consumers conduct their own due diligence on individual firms – irrespective of whether they’re authorised or not.
For example, you should:
Wherever and however you invest your money, there’s always a risk that you might not get back the capital you invested, so give yourself a helping hand and spend a little more time researching the firms you are considering using.