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.
The following external links are relevant:
- A new regulator for the new millennium
- Building the new regulator: Progress report 1
- Building the new regulator: Progress report 2
- The future regulation of insurance: A progress report
- Financial Services Authority
- CP 142: Operational risk systems and controls
- CP143: Integrated Prudential sourcebook – Feedback on chapters of CP97 applicable to insurance firms and supplementary consultation
- PS97_115: Integrated Prudential Sourcebook – Feedback on CP115 (Integrated Prudential Sourcebook – timetable for implementation) and CP97 (Integrated Prudential Sourcebook)
- CP97: Integrated Prudential Sourcebook
- CP140: The Interim Prudential Sourcebooks for Insurers and Friendly Societies and the Lloyd’s Sourcebook: Guidance on Systems and Controls
- PS140: The Interim Prudential sourcebooks for Insurers and Friendly Societies and the Lloyd’s sourcebook: Guidance on Systems and controls – Feedback on CP140 and ‘made’ text
- Current consultations at the FSA
- The firm risk assessment framework
- Building a framework for operational risk management: the FSAs observations
- CP190: Enhanced capital requirements and individual capital assessments for non-life insurers
- CP195: Enhanced capital requirements and individual capital assessments for life insurers
- Restructuring of prudential and systems and controls material in the FSA Handbook
- PS142: Operational risk systems and controls – Feedback on CP142
- PS142_2: Building a framework for operational risk management: the FSA’s observations – Feedback on industry practice as we prepare to implement CP142
- PS04/16: Integrated Prudential sourcebook for insurers