The UK financial services industry is a diverse and complex sector comprising many different participants: banks; building societies; credit unions; insurance companies; financial advisers; investment institutions; pension fund managers; accountants.
The activities of each of these institutions or advisers is monitored by one or more UK financial regulators. Working closely with the UK financial regulators are other government agencies whose primary role is to safeguard and protect retail investors.
Investor protection includes allowing access to organisations who can mediate on behalf of consumers when they are unhappy with the advice, service or product received. There is also a scheme to offer financial compensation in the event of failure by any one of these institutions.
In addition, there is a government department responsible for administering corporate bankruptcies and appointing an Official Receiver to those bankrupt entities.
Who are the UK financial regulators?
The leading UK financial regulators are:
- The Financial Conduct Authority
- The Bank of England
- The Prudential Regulation Authority
- The Financial Reporting Council
- The Insolvency Service
In addition to the financial regulators, there are also two other government agencies established to offer protection to retail investors:
- The Financial Ombudsman Service
- The Financial Services Compensation Scheme
Financial Conduct Authority
The Financial Conduct Authority (FCA) was established in April 2013 and is an independent public body, funded entirely from levies paid by the firms they regulate. They are accountable to the Treasury (which is responsible for the UK’s financial system) and to Parliament.
The FCA is responsible for the conduct supervision of all regulated financial services firms operating in the UK and also acts as the prudential regulator for those firms not supervised by the Prudential Regulation Authority (PRA).
The FCA has three operational objectives:
- to secure an appropriate degree of protection for consumers;
- to protect and enhance the integrity of the UK financial system; and
- to promote effective competition in the interests of consumers.
The FCA has the power to investigate and take disciplinary action against financial services firms where there have been breaches of the regulations. This includes the right to impose penalties, fines or other sanctions on those firms and where there is evidence of criminal misconduct, they have the power to commence criminal proceedings.
Bank of England
Although the Bank of England is primarily responsible for controlling UK monetary policy, included in its remit is oversight of the Prudential Regulation Authority (PRA).
The PRA is the institution which has responsibility for supervising the management and operations of over 1,500 banks, building societies and credit unions in the UK.
Prudential Regulation Authority
The overall objective of the Prudential Regulation Authority is to promote the safety and soundness of the firms they regulate. They have the right to investigate whether regulatory requirements have been breached and if so which ones.
Where an authorised firm fails to comply with the regulations, the PRA has the power to take enforcement action. This includes the right to vary that firm’s permissions to undertake certain regulated activities; levy financial penalties and impose suspensions or other restrictions.
Financial Reporting Council
The role of the Financial Reporting Council (FRC) is primarily to regulate accountants, auditors and actuaries. The FRC has the authority to take enforcement action against these professionals for malpractice. Disciplinary measures include the ability to levy fines and other sanctions such as issuing orders banning individuals from practicing.
In addition to its regulatory role, the FRC is also responsible for operating the UK’s Corporate Governance Code and the Stewardship Code. The main purpose of the former is to “promote transparency and integrity in business” and “underpin trust in the way companies are run”. The latter code encourages active engagement between investors and the companies they invest in.
Insolvency Service
The Insolvency Service is an executive agency of the Department for Business, Energy and Industrial Strategy (BEIS). Its primary role is to administer bankruptcies and examine the conduct and affairs of companies in liquidation.
It will also appoint an Official Receiver to act as Trustee or Liquidator to a bankrupt business in the event that a private sector insolvency practitioner cannot be appointed.
Once appointed, the Official Receiver will investigate the reasons behind the company’s failure and determine whether there have been any breaches of the Companies Act or insolvency legislation. Where evidence of misconduct is found it has the power to prosecute the offender(s) for a criminal offence or to disqualify the director(s).
Ultimately, the Insolvency Service is responsible for collecting and protecting assets for creditors after a company (or individual) has been made bankrupt and eventually wind up and shut down the company.
Financial Ombudsman Service
The Financial Ombudsman Service (FOS) was established by Parliament in 2000. Its remit was to mediate and resolve (where possible) complaints between financial services organisations and their customers.
If an organisation and its customer cannot resolve a complaint between themselves, the problem can then be referred to the FOS who will adjudicate the case. Their aim is to give an unbiased resolution to the problem. If the FOS decide someone has been treated unfairly, they have the statutory authority to make it right.
The range of activities and services covered by the FOS include
- bank accounts
- credit, debit and store cards
- payment protection insurance (PPI)
- other insurance, like motor, travel and household
- loans, including payday loans
- other credit, like car finance
- mortgages
- repayment problems and debt collection
- money transfers and online payments
- financial advice, savings and investments
- pensions
The FOS is an independent body and is funded by a combination of levies and case fees paid by the organisations they cover. These organisations pay from around £100 for the smallest firms, to over £300,000 for the largest banks and insurers.
For more information about the services provided by the FOS and how they can help you please refer to their consumer leaflet.
Financial Services Compensation Scheme
The Financial Services Compensation Scheme (FSCS) was established to offer financial protection to certain individuals (and depending on the type of claim), small businesses and charities.
Compensation is payable up to specified financial limits when an authorised firm fails stops trading or becomes insolvent and is unable to settle any investor claims against it.
In order to claim compensation from the FSCS you must be eligible under their compensation rules. These rules are set by the Financial Conduct Authority and the Prudential Regulation Authority. The eligibility criteria are as follows and claimants must satisfy all conditions:
- The financial services firm you were a customer or client of has failed and is unable to return your money (as the company is ‘in default’)
- The firm must have been authorised by the FCA or PRA at the time you were a customer or client
- The firm has been found negligent in connection with a qualifying regulated activity and owes you a civil liability
- You have suffered an actual, verifiable financial loss
- You are a private individual.
To check whether you are eligible to make a claim with the FSCS please click here.
The FSCS is funded by levies imposed on the institutions that make up the financial services industry. Banks, Building Societies, Life & Pensions intermediaries, Investment intermediaries and House Finance intermediaries (mortgage brokers).
UK enforcement agencies
In addition to the many UK financial regulators, there are also a number of enforcement agencies with responsibility for dealing with financial crime in the UK. To learn more about these agencies, please click here.
