UK-Based FCA Restructures Amid Sharper Focus on Regulatory Matters

The UK’s main financial watchdog for capital and financial markets, the FCA, has unveiled a new strategy document on the back of consultations with participants, on how it aims to govern the ever-evolving British financial services landscape. The strategy document was published with a number of key personnel changes at the regulator as its adds a new leaf of governance, after taking over from its predecessor, the FSA.

The FCA’s guidelines were disclosed by the firm in a note on its website stating that its new approach and strategy will have a focus on the regulatory structure and how it impacts consumers. Among the measures are departmental changes, collaboration between business units and members of the executive committee departing from the firm.

The move is a natural progression for the new body that came into practice on the first of April, 2013. Since taking over as the regulator, the , a series of issues that have impacted the credibility of the UK’s financial sector.

Finance is an important sector to the UK, it contributes to around 10% of GDP, one of the highest figures among the G7 nations. The UK has positioned itself as the go-to-market for certain financial instruments. As an advanced regulator it regulates and authorises firms that deal with a diverse range of instruments, from currency derivatives and CFDs to peer-to-peer lending and crowdfunding providers. In 2014, the UK was a magnet for firms seeking regulation as FX providers, most recently VIBHS, an African-origin firm gained approval as a matched-principal provider under the FCA.

The UK authorities have been implementing a new framework that maintains the country’s position as a leading hub for financial services and welcomes local and international firms, however at the same time it has made it difficult for firms to easily enter the system. This is evident in the number of matched principal licenses it has issued as compared to BIPRU730 (or market-making) over the last three years.

The point was reaffirmed by the regulator in its strategy document when referring to a sustainable model of regulation, it said: “We have already started to make a shift in this area by lowering barriers to entry in authorisations.”

Overseas investors can enter the UK by applying for a Tier 1 entrepreneur visa, thus enabling them to set up a domestic company that can deal in financial services and obtain regulatory approval, investors need £50,000 minimum capital to apply for the visa.

The Changes

The FCA’s proposed changes will come into effect on the first working day of 2015 and will be fully live by April. Among the changes the firm outlined are;

  • Merging the current Authorisations and Supervision Division that will be managed by Tracey McDermott, with its specialist supervision functions such as financial crime and client assets.
  • Create a new Strategy and Competition Division led by Christopher Woolard which will build on our competition capabilities, bringing together more of the FCA’s market-based work supported by an enhanced data, intelligence and research capability to enable better prioritisation and focus across the organisation.
  • Implement a new Risk Division to provide a strategic approach to the management of internal and external risk. Richard Sutcliffe will be the acting director for the new division.
  • Create a new Markets Policy and International Division led by David Lawton which will focus on increasing the FCA’s focus and influence on the European stage.
  • And finally, a Market Oversight Division will be created incorporating the FCA’s UKLA and Market Monitoring functions. This will be led on an acting basis by Marc Teasdale.

The FCA’s main theme is to operate as a conduct-based regulator, the happenings of the rates cases have put strong pressure on the regulator and the system it governs, however the recent fines issued in November, give a clear signal to wrong-doers that there is no room for mishaps in the system. New rates benchmarks are coming into practise and the regulator is ensuring that more systems and controls are intact at firms.

In addition, the FCA has been actively looking at alternative industries, particularly in the FinTech space, a common theme discussed at the recent Forex Magnates London Summit. New providers are coming forward with alternative solutions that challenge traditional banks and financial institutions in the way they conduct their business.

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