THE CREATION OF THE FCA


We will put more responsibility on providers to ensure that products only reach the customers they were designed for.
The FCA and financial stability


The regulatory system that will be established when the Bill becomes law has the stability of the financial system at its heart:


• The FPC will be able to give directions, using its macro-prudential tools, to both regulators for the purpose of protecting and enhancing financial stability.


• The PRA’s general objective requires it to consider financial stability in its regulation of PRA Authorised persons.


• The FCA’s integrity objective includes within it the ‘soundness, stability and resilience’ of the UK financial system.


We believe that the FCA has an important role to play in contributing to financial stability, particularly through regulation of the financial and wholesale markets. In carrying out our functions, we will consider, where appropriate, what impact our actions could have on financial stability.


With regard to resilience, the FCA will expect firms to observe high standards in their operational risk management, having procedures in place to ensure continuity of critical services. Firms will be expected to comply with standards for resilience and recovery set in this area.


The Financial Services Bill 2012 (the Bill), which will bring these changes into force, has not yet completed its passage through Parliament and may be subject to further change. The Government’s intention, however, is that the FCA’s overarching strategic objective, as currently set out in the draft legislation, will be:


To ensure that the relevant markets function well


To support this, the FCA will have three operational objectives:


• To secure an appropriate degree of protection for consumers.


 


• To protect and enhance the integrity of the UK financial system.


• To promote effective competition in the interests of consumers.


Delivering good market conduct


To ensure that the relevant markets work well the FCA will increase its focus on delivering good market conduct. We will look at a wider range of behaviour which damages trust in the integrity of markets or threatens consumer protection. Our three key priorities in delivering good market conduct will be:


A renewed focus on wholesale conduct We recognise that activities in retail and wholesale markets are connected and that risks caused by poor wholesale conduct can be transmitted between them. The failure to properly manage the often inherent conflicts of interest in wholesale markets is a root cause of risk to both market integrity and consumer protection. To enhance trust and confidence in the integrity of markets, we will take a more assertive and interventionist approach to risks caused by wholesale activities and, if necessary, will act to protect a wider range of client relationships than at present.


Trust in the integrity of markets The FCA will not accept that there are some categories of relationship in which we should not be interested because the sophistication of the parties enables them to look after their own interests. In particular, we mean where poor behaviour has a wider impact on trust in the integrity of markets, or where charges and fees within wholesale markets are passed down to retail consumers.


Preventing market abuse Good wholesale conduct relies on the effective policing of market abuse. Our approach to market conduct will reinforce the strong track record that we have built by tackling criminal and civil market abuse.




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