AML Regulators: Financial Conduct Authority (UK)

Who is the Financial Conduct Authority (FCA)?

The Financial Conduct Authority (FCA) is an independent, non-governmental organisation that governs the United Kingdom’s financial services industry. The FCA, established in 2013, was institutionalized to replace the Financial Service Authority (FSA) in the United Kingdom. This shuffling of governing bodies was brought upon by the Financial Services Act (2012).

The FCA marked an improvement on the FSA, implementing a new regulatory framework and maintaining the stability of the UK’s financial markets and also ensuring safe conduct by its financial service firms. Essentially, the body regulates financial transactions to protect customers and maintain the integrity of the UK financial system. The FCA is responsible for legislation and regulations concerning money laundering and terrorist financing. Money laundering acts and laws are created with the expertise of the FCA. The organization's work focuses on trade associations, consumer groups, domestic regulators, EU legislators, and a list of other stakeholders.

As the core financial service authority in the United Kingdom, the FCA regulates the conduct of more than 59,000 businesses. They also act as the prudential supervisor for 49,000 firms and set specific standards for 19,000 firms. In total, the UK financial services employ over 2.2 million people and contribute around £65.6bn in tax to the UK economy annually.

The FCA works alongside the Prudential Regulation Authority to build financial regulations in the region.

Under the Financial Services and Markets Act (2000) as amended, the Chief Executive of the Financial Conduct Authority is appointed by the Treasury.

Powers of the Financial Conduct Authority (FCA)

The powers of the Financial Conduct Authority over the UK’s financial services industry are extensive. The body has the comprehensive power to suggest, create, and enforce mandates, including setting regulations and investigative powers. The FCA is authorized to investigate both institutions and individuals suspected of violating any financial regulations. Their work is governed by the Financial Services and Markets Act (2000). The body is accountable to the UK Treasury and Parliament. Being an NGO, the FCA does not receive any government funding. Instead, the body charges a fee from every authorized firm that carries out financial activities regulated by the FCA and other investment exchange bodies.

The FCA’s powers focus on three primary objectives:

• Securing an appropriate degree of protection for consumers
• Enhancing market integrity and protecting the United Kingdom's financial system
• Promoting healthy market competition to serve the interests of consumers

Industries, Sectors, and Firms

Banks

Financial Services are regulated by The Financial Services Act (2012), which was introduced as a new system and implemented to protect and boost the UK economy.

The FCA monitors banks to ensure they:

• Treat customers fairly
• Encourage healthy competition and nurture innovation
• Aid the FCA in identifying potential risks before they manifest, so they can take preventive measures

Mutual Societies

The UK is home to over 10,000 mutual societies.

The FCA ensures that they:

• Register new mutual societies
• Keep public records
• Receive annual returns

Financial Advisers

Rules for Independent Financial Advisers (IFAs) came into action in 2012.

To be authorised as an IFA, businesses are required to:

• Provide a wide range of retail investment products
• Offer honest, unbiased, and unrestricted advice to consumers based on a fair and comprehensive analysis of the market

Functions of the Financial Conduct Authority (FCA)

Supervision

The FCA oversees and establishes the minimum standards for financial services products, including credit cards, pensions, investments, and ISAs. These services must meet the FCA’s standards to enter the market and firms may be forced to withdraw or change products that do not make the cut. The FCA has complete authority to ban any financial product for up to one year. They can also impose an indefinite ban if they deem it necessary.

Regulations

The FCA supervises banks and other financial payment institutions. They ensure that customers are treated fairly, markets operate safely, and the growth of the economy is not stifled or posed with risks. A key area regulated by the FCA is money laundering. The FCA creates and implements the rules against money laundering that must be followed by banks and other financial institutions. Organisations work hard to achieve compliance with these laws, and many are using AML software to carry out the process. They have to monitor suspicious activity, perform risk assessments on their clients, and appoint compliance officers. Due to the new digital nature of the financial industry, anti-money laundering regulations are often subject to change and updates. Banks and other financial institutions must adhere to these regulations, and AML software aid them in doing so. The anti-money laundering software, especially if created using machine learning, are capable of keeping up with the ever-evolving nature of financial regulations and carry out real-time monitoring.

Authorization

Every financial service provider, consumer credit firm, and investment firm in the UK must be registered with and authorized by the FCA. The vetting process for this is thorough, and an application, which is chargeable, can take between six to twelve months to get approved. The most important factor while authorizing a firm is their ability to meet the regulatory standards and be proactive and work with the FCA.

FCA Beyond the UK

The FCA engages with their regulatory peers, such as:

• The European Union
• EU institutions
• European Supervisory Authorities (ESAs)
• European Securities and Markets Authority (ESMA)
• European Banking Authority (EBA)
• European Insurance and Occupational Pensions Authority (EIOPA)

Around the world, the FCA is dedicated to international engagement with other global standard setters and regulatory bodies. The FCA is a member of:

• International Organization of Securities Commissions
• International Association of Insurance Supervisors

The FCA participates in the UK’s membership of the Financial Stability Board, as well as the government’s efforts with the Financial Action Task Force. They are also members of the International Financial Consumer Protection Organization (FinCoNet) and work with the Organization for Economic Co-operation and Development (OECD).

References

https://www.fca.org.uk/

https://www.bloomberg.com/profile/company/2630281Z:LN

https://www.gov.uk/government/organisations/financial-conduct-authority

https://www.investopedia.com/terms/f/financial-conduct-authority-uk-fca.asp

https://www.fca.org.uk/firms/financial-crime/money-laundering-terrorist-financing