Financial Management and Planning

Archive for the ‘Financial Services Authority’ Category

                            How FSA of UK function as an integrated regulator?

 

Introduction

 

Financial Services and Market consist of a number of players rendering all the financial services under one roof. Earlier each market player had their own sphere and they do the business within their boundaries. The scenario had been changed and a number of financial services are being rendered by the same institution under the same roof. The arena of the banking and financial industry had met with oceanic changes during the last few years, by internationalisation of the finance market and free trade.  The investment banking, clearing houses, loan disbursing and security services and the related financial services had been merged into one group. The same financial institution had been serving as investment banking, clearing houses, loan disbursing and security services and the related financial services provider.

 

As the middle class also started investing in the financial products and in securities, the industry becomes one of the biggest in the world. The regulatory issue came into the fore front as banking and financial industry becomes the integral part of the country’s financial stability. The insolvency of the banking companies created lot of problems. The structured product which is a combination of a verity of financial products is an example which gives light to the integrated financial services.

 

Background

 

A historical view of the banking regulatory activities will give light to the facts why the Financial Services and Markets Act 2000’s main objective was to have an integrated financial regulation. As per Section 4(3) of the Bank of England Act 1946, the Bank (The Bank of England) may request information and give recommendations to any such person carrying on a banking undertaking as may be declared by order of the Treasury to be a banker, and can give directions with the approval of the Treasury. The Schedule 8 of the Companies Act of 1948 also provided for banking companies or companies dealing in financial market to file accounts statements, the Prevention of Fraud (Investments) Act 1958 had provisions  for regulation of business of securities  In 1974, the German bank, Bankhaus I.D.Herstatt collaped and the same affected the foreign currency transactions round the globe. In 1979, The Banking Act of 1979 introduced authorisation procedures for   those who intent to do business of taking deposits. Further in 1984, John Matthey Bankers went into great trouble and the Treasury and the Bank think over to amend the Banking Act 1979, even though it had supervisory powers under Section 16 and 17 of the Banking Act 1979. Thus the Banking Act 1987 was enacted with more statutory supervisory powers.

 

The Financial Services Act 1986 introduced the Securities and Investments Board Ltd., a regulatory authority responsible for the system of regulation of investment business. It was a combination of the self regulatory system and the statutory regulations for regulation of the investment industry. The act even provided for civil remedies to investors who suffer loss on account of any contravention of the provisions. As per Section 114 of the Financial Services Act 1986, the regulatory powers were delegated to a designated body known as Securities and Investment Board Limited, which was a body corporate. The status and exercise of the regulated functions of the Securities and Investment Board Limited was described in Schedule 9 of the Financial Services Act 1986. The Securities and Investment Board Limited is authorised to regulate all the investment businesses in Schedule 1 other the business exempted by law.

 

A Fair and Proportionate Single Regulator

 

The Financial Services and Markets Act 2000, is a laudable piece of legislation, which integrated the regulators of the entire financial sector under a single regulator. The Financial Services Authority, a company limited by guarantee was conferred with the functions of regulation of financial sector by this a by the Financial Services and Markets Act 2000. The general duties of the Financial Services Authority are to meet with the regulatory objectives by acting in such a way in compatibility with the regulatory objectives. To maintain confidence in the financial system operating in United Kingdom including regulated activities as envisaged by the Financial Services and Market Act 2000 (Regulated Activities) Order 2001, SI 2001/544 includes financial markets and exchanges, and other activities financial markets and exchanges. To promote public understanding of financial system, particularly awareness of risk and benefits associated with different kind of investment or other financial dealing by way of appropriate advices and information. To secure an apt degree of protection for consumers right in the financial services market. The regulatory objective to reduce the financial crimes, like fraud or dishonesty, misconduct in a financial market or misuse of information on financial market, to the possible extent and in handling the proceeds of crime. 

 

The Financial Services Authority is duty bound to consult the Practitioner panel and the Consumer panel. The Practitioner panel is a panel of persons who represent the interest of the practitioners, which shall include the representatives from authorised persons, recognised investment exchanges and recognised clearing houses. The Consumer Panel shall consist of the persons who represent the interest of the consumers. The Financial Services Authority is duty bound to consider the representations made by the panels. If the FSA disagrees with the proposal of the panels it should be given in writing.

 

The Financial Services market Act 2000, provides that any person who is engaged in the business of financial services shall be either authorised by the Financial Services Authority or having permission according to law, unless exempted by law. All the persons dealing in investments, arranging deals with investments, deposit taking, safekeeping and administration of assets, managing investments, providing advice on investment, establishing collective investment schemes, using computer based system for giving investment instructions shall be regulated by the FSMA 2000. Investments shall include securities, investments creating or acknowledging indebtedness, government and public securities, instruments giving entitlement to investments, certificates representing securities, units in collective investment schemes, options, futures, contracts for differences, contracts of insurance, participation in Lloyd’s syndicate, deposits, loans secured on land, rights in investments etc.

 

The Financial Services and Markets Act 2000, provided for authorisation and permission of Lloyd’s underwriting agents, Lloyd’s members’ advisers, an Appointed agent, persons who carry on overseas investment business and insurance business, Insurance companies, European companies carry on reinsurance business and investment business etc. The Friendly Societies, societies other than friendly societies registered under the Friendly Societies Act 1974 and friendly societies carried on insurance business overseas all came under the control of the FSA by virtue of Section 22 of FSMA 2000, read with Financial Services and Markets Act 2000( Transitional Provisions) ( Authorised persons Etc) Order 2001.SI 2001/2636.  Members of recognised self regulating organisations, authorised persons under the Financial Services Act 1986, and a person holding a certificate issued by a body which regulates the practice of a profession authorised by virtue of Section 15 of Financial Services Act 1986, and Listed money market institutions are also under the regulatory provisions of the FS
MA 2000. Persons who is in the business of deposit taking as per Section 6 of the Banking Act 1987, and carrying overseas banking business  will also under the preview of the regulatory authority, FSA. Any person who carries on non- banking listed activities under Banking Act and Building Societies Act, will also be under the supervisory control of FSA. As per Part XX of The Financial Services and Market Act 2000, the a person who is entitled to practice the profession who provides financial services also come under the purview of the Financial Services Authority. 

 

The Financial Services and Market Act 2000, regulates the activities in the financial market with the same criteria applicable to all the services. Even though it was not clearly mentioned in the act regarding the coverage of the act in the industry, by virtue of provisions of The Financial Services and Market Act 2000, the entire financial market came under its purview. From time to time the scope was widened by way of secondary legislations. However in the Financial Services and Market Act 2000 itself the applicability was also mentioned to cover the financial market as whole. A regulated activity is described in Section 22 of The Financial Services and Market Act 2000, as an activity of a specified kind which is carried on by way of business related to an investment including any asset, right or interest of specified in an order made by treasury. The scope of the Financial Services and Market Act 2000 was kept very wide and open to include any kind of activity financial and non- financial as and when required from time to time.

 

A verity of legal issues can to frontline on the emergence of multifunctional banks. The function of commercial banks with investment banking and other financial activities elevated the risk associated with the finance industry. The multifunctional character of banking industry needs more supervision and regulation. The financial industry in United Kingdom is interlinked and a single regulated legal regime becomes a necessity. In The Financial Services and Market Act 2000 all the limbs of financial activity are regulated with the same degree. Core banking, investment banking and other financial activities are controlled and regulated equally but proportionally. Even though the yardstick is same the methodology differs from industry to industry.  

 

The Financial services Authority as a single regulator in the financial market had been conferred with powers to regulate the financial market in a proportionate way. All the sectors had been given similar or equal consideration. The Financial Services Markets Act 2000 and various secondary legislations under it, had set forth a legal regime for regulating all the activities and those who are involved in the activities related to financial sector. The financial markets including the investment market, insurance, securities, banking sector, non-banking financial sectors and so on are under the supervision of the Financial Services Authority. All the financial services, managing investments, investment advice in any form including computer-based systems for giving investment instructions are all monitored by the Financial Services Authority.

 

Right from major multinational and transnational banks to friendly credit societies are under the guidance, supervision and control of the Financial Services Authority as per the Financial Services Markets Act 2000. The huge investment houses and the financial advisors dealing with retail investors are also regulated by the Financial Services Authority. The small firms and multinational corporate giants in the financial sector are governed and regulated with the same authority of law and with equal status.

The proportionality of legal rules applicable and the implementation of law are same to the whole financial market so as to be fair to the aims and objectives as envisaged under the Financial Services Markets Act 2000.

 

In Schedule 2 of The Financial Services and Market Act 2000, the various regulated activities, investments and so on, are described. The supervision and regulation of the financial and non financial activities under the purview of the Financial Services and Market Act 2000 is to be done fairly. The regulator Financial Services Authority is liable to act as per law. The treasury may appoint an independent person to review the discharging of functions of the regulator, Financial Services Authority, to find that the regulator is acting in accordance with law. The Treasury may arrange independent inquiries regarding the activities of the authorised persons in financial sector, whether they are acting in conformity with law even if the regulator, the Financial Services Authority hadn’t taken appropriate steps to check the activities. The activities of the financial services authority may be questioned before the Financial Services Market Tribunal The actions taken by the Financial Services Authority are to be fair and it is obligatory to reflect it in the annual report to be filed to the Treasury which in turn submit it before the Parliament.

The Financial Services and Markets Act 2000, The regulator, Financial Services Authority shall give a notice in writing to the any applicant under Section 40 of Financial Services and Market Act 2000, and the application is rejected it shall give its determination on the application within six months and if it proposes to reject the application a warning notice shall be served. If the Financial Services Authority is prohibiting the performance of a regulated activity it must serve a warning notice to the Authorised person setting out the terms of the prohibition and if refused, a decision notice must be given. In order to be fair to the conduct of the Authorised persons the Financial Services Authority may issue statement of conduct issued to the approved persons and if necessary a code of practice also. The Financial Services Authority shall serve a warning notice to the Authorised person who is found to be guilty of misconduct before initiating any disciplinary action. The Financial Services Authority while imposing penalty for market abuse must give a warning notice and if the person who receives a notice had made any representation and appealed that he had taken all reasonable precaution and due diligence to avoid such behaviour and satisfied the Authority, it shall not impose penalty. If the Financial Services Authority is imposing any penalty against the authorised persons it must state the amount of penalty in the notice.  Hence it is quiet clear that the rule of ‘audi alteram partem’ should be applied by the Financial Services Authority, who is the sole regulator under the Financial Services and market Act 2000 while dealing with the Authorised persons and applicants.

 

Conclusion

 

To sum up with, the Financial Services and Market Act 2000 is aimed to achieve the regulation of the whole financial sector in a fair manner, to be proportionate to all the sectors with clear objectives. The financial service regulator, Financial Services Authority is having the jurisdiction and power over all the financial market players. The Financial Services and Market Act 2000 integrated all the regulatory powers and conferred it on the Financial Services Authority. The accountability of the Financial Services Authority as a regulator is at its highest level so as to maintain the equilibrium of the finance market. The Financial Services Authority should be fair and reasonable to the persons engaged in the business, to the consumers in the financial market and to the other stakeholders who are working in the professions related to the financial market. The Financial Services and Market Act 2000 and its secondary legislations have clear objectives that are to be fair and the Act itself had these provisions incorporated in it. 

 

The characteristic of the business and the modes operandi are different for each sector of financial
activity. The risk factors involved and the protection which should be offered to the consumers should vary from sector to sector. The Financial Services and Market Act 2000 had succeeded to gain in rendering a fair and proportional regulation and supervision to the entire financial sector. The Financial Services Markets Act 2000, is however a laudable piece of legislation which is aimed to maintain the financial service market in a fair manner, by integrating the whole market under one roof. The applicability of the legal propositions to each and every sector of financial market is also in the right proposition.

 

 

 

 

 

 

Bibliography

Books

1. Allan P. and Robert F (annotations) Financial Services Act 1986 ( 1st Edn. Sweet and Maxwell, London 1987)

2. David Palfreman, The Law of Banking,( 3rd Edn. M&E Handbooks London 1986) 3. 3. Keith Walmsley (edn.)Butterworths Company Law Handbook  (22nd Edn. LexisNexis, U.K, 2008)

4. Loo Choo Chiaw (edn.) Butterworths Banking and Financial Law Reiew 1987(1st Edn., Butterworths London 1987)

5.Maxmillian J.B.H, Handbook of Banking Regulation and Supervision ( 1st edn. Woodhead-Faulkner, London, 1989)

 

                            Article by

 

ANISH KUMAR KUNJACHAN KADANCHIRAYIL, UW Bangor, UK.

 

 

 

Finding a new financial adviser can be a daunting task. We hope you will be able to use the following ten questions (and suggested answers) to ensure that your new adviser meets your needs.

1 – Are you independent?

Until quite recently, there were only two kinds of financial adviser – tied or independent. A tied financial adviser could only advise on products from their own company whilst an independent financial adviser acted on behalf of the client, and was able to access products from the whole market. Recent changes have increased the types of advisers to include independent, whole of market, multi-tied and tied advisers.

Always go for independent financial advice. A single company is unlikely to be the most competitive in all areas of financial planning so the ability to select from every available product/company is a minimum starting point for good financial advice. Multi-tied advisers might purport to represent the ‘best’ products in the market but they will not have the same level of choice as an independent financial adviser.

2 – How long have you been a financial adviser?

Experience isn’t everything, and the back-up and strong support of other IFAs within the firm may be just as important. However, you may have more confidence in an adviser who is not a new entrant to the retail financial services market and has at least some experience under their belt. You can check the background of an IFA on the Financial Services Authority (FSA) register at www.fsa.gov.uk/register.

3 – What qualifications do you hold?

The basic minimum qualification requirement for an IFA is the Certificate in Financial Planning or Certificate of Financial Advice (CeFA). Both of these sets of qualifications are a minimum standard and do not reflect any particular expertise or knowledge. You should shop around to find an adviser who holds the Diploma or Advanced Diploma in Financial Planning (previously known as the Advanced Financial Planning Certificate – AFPC).

For certain areas of advice you should seek an adviser who holds more advanced qualifications. The highest levels of qualification are the Certified Financial Planner licence and, more recently, Chartered Financial Planner status. There are relatively few advisers in the UK who hold either of these qualifications, but they do represent the highest technical standard.

4 – How do you charge for your services?

Always seek an adviser who offers you the choice of paying a fee for their services, rather than working on a commission basis. This is the only way you can ensure complete impartiality. You should request an engagement letter after the first meeting that sets out the services that will be provided and the way these will be charged. Fee-based advice is still often paid for by way of commission that is generated by the sale of a financial product.

5 – Do you have any specialists within your firm?

Very few financial advisers have expert knowledge in all areas of financial planning. Ensure that the adviser can refer you to other specialists within the firm, and that that are willing to do so when needed. They may also need to refer you to specialists outside of their own company for certain areas of advice, and they should explain to you when this would be necessary.

6 – What level of ongoing service do you offer?

The answers to this question are bound to vary from firm to firm. If the adviser is going to be receiving ongoing remuneration for the servicing of your policies, you should expect to receive some service in return. Advisers will offer different levels of ongoing service, and you should ensure that this is agreed in the early stages of your discussions. Some firms charge a monthly, quarterly or annual fee for this ongoing service and advice.

A good quality review carried out once a year almost always makes sense. At a very basic level this should be to update the advisers’ understanding of your financial position and to enable them to review any products or investments that you have.

7 – How do you work with other professionals?

A good financial adviser should be able to work closely with your solicitor and accountant. The advice that they provide should compliment the advice from your other professional advisers. Ensure that your financial adviser is comfortable working with other professionals and find out how they will charge for doing so.

8 – Are you a member of any professional bodies?

There are a number of professional bodies that a financial adviser can belong to. These include the Personal Finance Society (PFS) and the Institute of Financial Planning (IFP). Being a member of a professional body will mean that an adviser has committed themselves to following a code of professional conduct and they are likely to be striving towards improving their level of professional qualifications.

9 – Will your advice be focused on one area or will it be a complete review?

You may or may not require a complete review of your financial position. Some people seek financial advice to simply obtain recommendations on one particular aspect of their financial lives. Our own company offers two services – focused financial solutions for people who need advice on one or possibly two financial areas; and wealth management solutions for people who need a holistic financial planning review. Establish exactly what the financial adviser is offering to you in terms of the scope of their recommendations.

10 – How will you keep me up to date with changes in the world of financial planning?

At a very minimum the IFA should offer you a regular newsletter to keep you up to date with financial news and developments. You should also find out of they have an informative website and a blog with regular updates on different areas of financial planning.

Remember that selecting a financial adviser is not a lifetime commitment, but due to the nature of the decisions they will be helping you to make, you should ensure that you ask these important questions and feel comfortable with the answers.

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