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18 July 2000
DELIVERING FINANCIAL REGULATION
The framework for delivery of the full benefits from the modernisation of financial services regulation will be in place in about a year's time, Economic Secretary Melanie Johnson said today.
Meeting consumer and business representatives with FSA Chairman Howard Davies at No 11 Downing St today, Miss Johnson said :
"The regulatory framework set out under the Financial Services and Markets Act marks a step change. It will deliver significant, wide ranging benefits both to consumers and the financial services industry. Howard Davies and I are determined to secure these as early as practicable. We are therefore today setting a target of about a year's time for completion of the necessary arrangements. This includes the secondary legislation required, new FSA rules and systems, the new Ombudsman arrangements, and industry preparations.
"Drawing the nine existing regulatory regimes together under a single regulator, operating under a single set of rules, is a major undertaking. A great deal of detailed technical work needs to be done, working closely with all those with an interest. We are clear about the need for time to prepare properly for such important changes.
"Setting a target for completion of about a year's time gives all concerned a framework within which to make proper preparations for the new regulatory system so that it gets off to a smooth start."
Howard Davies added:
"The new regime will bring benefits to both consumers and firms, so we would like to see it in operation as soon as possible. But we must consult properly on the details and give firms time to adapt their systems and training. The target announced today sets a realistic balance between these two considerations."
Sir Adam Ridley, Director General of the London Investment Banking Association (LIBA), speaking on behalf of the City Liaison Group, said :
"I am sure that members of the Group would welcome warmly the Treasury's announcement and willingness to continue to consult the regulated sector."
NOTES FOR EDITORS
1. The Financial Services and Markets Act 2000 (FSMA) received Royal Assent on Wednesday 14 June. The Act has now been published, together with detailed explanatory notes. Both are available from the Stationery Office (FSMA, ISBN 0-10-540800-X, £21.70 and explanatory notes, ISBN 0-10-560800-9, £14.50). An explanation of the main provisions of the Act is attached.
2. Melanie Johnson and Howard Davies hosted a business breakfast at No 11 Downing Street today.
3. The City Liaison Group, on whose behalf Sir Adam Ridley was speaking, comprises :
Association of British Insurers (ABI).
British Bankers' Association (BBA)
Fund Managers' Association (FMA)
Futures and Options Association (FOA)
International Primary Market Association (IPMA)
International Swaps and Derivatives Association (ISDA)
London Investment Banking Association (LIBA)
4. Media enquiries should be addressed to Charles Keseru at the Treasury press office on 020 7270 5188.
Financial Services and Markets Act 2000
The Financial Services and Markets Act 2000 ("the Act") was introduced into Parliament on 17 June 1999. It received Royal Assent on 14 June 2000. The Act comprises 30 parts, as in the attached annex. More detailed information is contained in Explanatory Notes to the Act, available from the Stationery Office.
The Act provides the framework within which a single regulator for the financial services industry, the Financial Services Authority (FSA), will operate. It equips the FSA with a full range of statutory powers and creates the Financial Services and Markets Tribunal ("the Tribunal"). The Act also establishes the framework for single ombudsman and compensation schemes to provide further protection for consumers.
The Act provides, amongst other things, for :
- the constitution and accountability of the FSA
- the definition of the scope of regulated activities
- the control of financial promotion
- powers of the FSA to authorise, regulate, investigate and discipline authorised persons
- the recognition of investment exchanges and clearing houses
arrangements for the approval of controllers and the performance of regulated activities - the oversight of financial services provided by members of the professions
- regulation and marketing of collective investment schemes;
certain criminal offences; - powers to impose penalties for market abuse; and
the transfer to the FSA of registration functions in respect of building societies, friendly societies, industrial and provident societies and certain other mutual societies.
Businesses to be authorised and regulated under the Act include:
- Banks
- Building societies
- Insurance companies
- Friendly societies
- Credit unions
- Lloyd's
- Investment and pensions advisers
- Stockbrokers
- Professional firms offering certain types of investment services
- Fund managers
- Derivatives traders
- Mortgage lenders
The regulation of financial services has, historically, been the responsibility of a range of different bodies :
- the Securities and Investment Board (SIB)
- the Self-Regulating Organisations (SROs), most recently: the Personal Investment Authority (PIA), the Investment Management Regulatory Organisation (IMRO) and the Securities and Futures Authority (SFA)
- the former Supervision and Surveillance Branch of the Bank of England
- the Building Societies Commission (BSC)
- the Insurance Directorate of the Treasury
- the Friendly Societies Commission (FSC)
- the Registry of Friendly Societies.
These functions will now be drawn together under the FSA as the single regulator. The Government announced proposals to introduce legislation to reform the regulation of financial services in May 1997. Subsequently, steps were taken to transfer responsibility for regulation to the FSA when this was established on 27 October 1997 as the successor to the SIB. This enabled the FSA to bring together the staff of the predecessor regulators at its offices in Canary Wharf and to organise itself in a way that reflects the future regulatory arrangements.
Certain functions under the Banking Act 1987 ("Banking Act") were transferred by the Bank of England Act 1998. In other cases, the FSA entered into contracts with the relevant bodies to perform regulatory functions on their behalf pending Royal Assent and implementation of the provisions of the Act. For example, the Treasury contracted with the FSA to perform certain functions under the Insurance Companies Act 1982 ("ICA 1982"). The FSA also took on the function of UK competent authority for listing quoted companies from the Stock Exchange on 1 May this year.
The Act will broadly continue the regime for recognised investment exchanges and clearing houses under the Financial Services Act 1986 ("FS Act 1986"), although FSA powers under the Act will be wider than those under the predecessor legislation.
The FSA will have powers to regulate the Lloyd's insurance market, and have powers of direction over the Council of Lloyd's, although the latter will retain its responsibilities under Lloyd's Acts for the superintendence and governance of the Society of Lloyd's.
The recognised professional bodies regime under the FS Act 1986 will not continue. Professional firms (such as solicitors, accountants and actuaries) carrying on mainstream regulated activities will be authorised and regulated directly by the FSA. However, some categories of professional firm will benefit from an exclusion from the scope of regulation under the Act, subject to arms-length oversight by, and certain powers of, the FSA. The Act does not affect the professional bodies' wider powers to regulate the professional activities of members of their respective professions.
The Act will coordinate and modernise financial regulatory arrangements currently established under a number of different enactments:
- Credit Unions Act 1979
- Insurance Companies Act 1982
- Financial Services Act 1986
- Building Societies Act 1986
- Banking Act 1987
- Friendly Societies Act 1992
Those enactments are generally supplemented by secondary legislation or rules. It is intended that powers conferred by the Act will be used so that the relevant parts of that legislation, and rules and regulations made under it, will be substantially repealed when the Act comes into force. Other enactments will also be repealed, or substantially repealed, include the Policyholders Protection Acts 1975-97; Industrial Assurance Acts 1923-48; and the Insurance Brokers (Registration) Act 1977.
The Act also provides for the transfer to the FSA and the Treasury of the remaining functions, including, eg, functions relating to the registration of mutual societies, of the Building Societies Commission, the Friendly Societies Commission and the Registry of Friendly Societies.
THE FINANCIAL SERVICES AND MARKETS ACT 2000
Part I, The Regulator
Sets out the FSA's general duties and statutory objectives. It also, with Schedule 1, imposes requirements about the FSA's constitution and accountability and about the exercise of certain of its functions.
Part II, Regulated and Prohibited Activities
Provides a power for the Treasury to set the scope of regulation by order, within the overall object and purpose of the Act. It prohibits persons who are not authorised (or exempt) from carrying on a regulated activity in the UK and from holding themselves out as being authorised or exempt. It also sets out arrangements for the regulation of financial promotion.
Part III, Authorisation and Exemption
Sets out which persons are to be authorised for the purposes of the Act and gives the Treasury power to exempt certain persons from the requirement to be authorised. Authorised persons will include those persons given permission under Part IV and certain persons from other member States who are authorised in accordance with arrangements under the Treaty of Rome (the "Treaty") and the single market directives.
Part IV, Permission to Carry on Regulated Activities
Entitles persons to apply for FSA permission to carry on particular regulated activities and makes provision about the giving, variation and revocation of such permissions by the FSA.
Part V, Performance of Regulated Activities
Requires persons, such as employees and office holders, who perform specified types of function for authorised persons, to be approved by the FSA. Requires such approved persons to behave in a way that complies with any statements of principle issued by the FSA and gives the FSA certain disciplinary powers. It also gives the FSA powers to prohibit persons from carrying out functions in relation to regulated activities.
Part VI, Official Listing
Sets out the powers of the competent authority and the obligations of issuers of listed securities. It makes provision for the maintenance of, and admission to, the official list, and for the making of listing rules (including listing rules in relation to sponsors).
Part VII, Control of Business Transfers
Creates a mechanism for the transfer of banking and insurance business, subject to a court procedure and regulatory scrutiny.
Part VIII, Penalties for Market Abuse
Confers on the FSA power to impose penalties for market abuse. The Act sets out the kinds of behaviour which constitute market abuse and requires the FSA to produce a code which helps to determine whether particular behaviour amounts to market abuse.
Part IX, Hearings and Appeals
Establishes the Tribunal and sets out the procedure for referring cases to it where the FSA has decided to take regulatory action under the various powers conferred by the Act. It gives a right to appeal against a decision of the Tribunal on a point of law.
Part X, Rules and Guidance
Confers powers upon the FSA to set regulatory requirements for persons authorised under the Act. Gives the FSA power to issue guidance on requirements imposed by and under the Act. Also sets out the procedures that the FSA must follow in exercising those powers.
Part XI, Information Gathering and Investigations
Sets out the powers of the FSA and of the Secretary of State to require the production of information and documents, to require reports to be prepared, to conduct investigations and to gain access to premises with a warrant.
Part XII, Control over Authorised Persons
Requires persons who propose to acquire control over certain authorised persons to notify, and secure the approval of, the FSA.
Part XIII, Incoming Firms: Intervention by the FSA
Confers power on the FSA to intervene in the activities of authorised persons from other member States who are authorised in accordance with rights under the Treaty and EC directives. It sets out the grounds on which the power is exercisable and the procedure for exercising it.
Part XIV, Disciplinary Measures
Gives the FSA powers to issue public statements about, or impose penalties on, authorised persons who fail to comply with requirements imposed by or under the Act.
Part XV, The Financial Services Compensation Scheme
Requires the FSA to create a scheme for the payment of compensation to consumers who suffer financial loss as a consequence of the inability of an authorised person to meet its liabilities. It also confers a certain number of powers on the manager of the scheme.
Part XVI, The Ombudsman Scheme
Requires the FSA to establish a single, compulsory ombudsman scheme for the speedy and informal resolution of disputes between members of the public and authorised persons and confers certain powers on the operator of the ombudsman scheme for that purpose. It also provides for the ombudsman to adjudicate on certain other types of dispute, on a voluntary basis.
Part XVII, Collective Investment Schemes
Provides for the regulation of collective investment schemes.
Part XVIII, Recognised Investment Exchanges and Clearing Houses
Sets out the regulatory regime for investment exchanges and clearing houses and provides for competition scrutiny of the regulatory provisions and practices of those bodies.
Part XIX, Lloyd's
Makes the Society of Lloyd's an authorised person and gives the FSA certain powers to direct the affairs of the Society, its members and Lloyd's managing and members' agents. It also provides for the regulation of former underwriting members of the Society.
Part XX, Provision of Financial Services by Members of the Professions
Creates an exemption for members of the professions providing financial services to clients in particular circumstances and gives the FSA an oversight role and certain powers in relation to firms that benefit from the exemption.
Part XXI, Mutual Societies
Confers powers on the Treasury to transfer to the FSA and to the Treasury certain functions relating to the registration and regulation of building societies, friendly societies and industrial and provident societies and certain other mutual societies. It also confers powers to dissolve certain statutory bodies.
Part XXII, Auditors and Actuaries
Concerns the appointment of auditors and actuaries by authorised persons and their responsibilities.
Part XXIII, Public Record and Disclosure of Information
Requires the FSA to maintain a public record of authorised (and certain other) persons, and makes provision about the purposes for which confidential information may be disclosed by and to the FSA and other persons having functions under the Act.
Part XXIV, Insolvency
Gives the FSA powers to ask the courts to wind up, or initiate other insolvency procedures against, authorised (and certain other) persons. It also enables the FSA to be heard by the court when such proceedings are commenced by third parties.
Part XXV, Injunctions and Restitution
Gives the FSA and the Secretary of State powers to seek injunctions in relation to regulatory contraventions and offences for which the FSA has powers to prosecute. It also provides for restitution to be paid to those who have incurred a loss as a result of such a contravention.
Part XXVI, Notices
Contains provisions relating to the procedures which the FSA must follow when giving notice of proposed actions under various provisions of the Act. It relates, for example, to decisions not to give permissions or to refuse applications for approvals and to decisions to take regulatory action, such as imposing penalties or making public statements.
Part XXVII, Offences
Creates certain offences, including making misleading statements and supplying false information to the FSA. It also makes general provision about offences under the Act and contains provision about the institution of proceedings, for example under Part V of the Criminal Justice Act 1993 (insider dealing) and in relation to money laundering.
Part XXVIII, Miscellaneous
Contains provisions giving the Treasury power to direct the FSA and certain other bodies to comply with UK international obligations, including European Union decisions to take reciprocal trade action. It also contains provisions concerning gaming contracts, reviews of past business and a number of other matters.
Part XXIX, Interpretation
Part XXX, Supplemental
Contains provisions dealing with the commencement of the legislation and its territorial scope. It confers certain powers on the Treasury in relation to consequential and transitional provisions and, with Schedules 18 and 20 to 22, makes certain amendments to other legislation.
Further Details
The Financial Services and Markets Act 2000 and Explanatory Notes to the Act are published by the Stationery Office (ISBN 0-10-540800-X, price £21.70 and ISBN 0-10-560800-9, price £14.50, respectively)