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Financial Services Authority

The Financial Services Authority is the single statutory regulator in the UK responsible for regulating deposit-taking, insurance and investment business. It assumed its full powers on 2nd December 2001 (N2).

The FSA practices risk-based regulation. It has four statutory objectives, and tries to manage the risk to those objectives. The objectives are:

Market confidence
Maintaining confidence in the financial system;
Public awareness
Promoting public understanding of the financial system;
Consumer protection
Securing the appropriate degree of protection for consumers;
Reduction of financial crime
Reducing the extent to which it is possible for a business carried on by a regulated person to be used for a purpose connected with financial crime.

Regulated firms are expected to have frameworks in place to manage the risks to the FSA’s objectives. They may manage other risks too, of course, such as risks to shareholder value.

The FSA assesses the risk category of its regulated firms by looking at impact (essentially measured by the size of the firm) and the probability of a risk crystalising, based on its risk management framework, compliance culture, and systems and controls. The level of supervision depends on a combination of these two factors, of which impact appears to have the greater effect: the smallest firms will not receive heavy supervision however bad their practices.

The FSA emphasises that the aim is not a zero-failure regime. The belief is that a small number of low impact failures will not materially affect the statutory objectives: a single high impact failure would be much more significant.


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