Role of the FSA

Introduction

The Financial Services Authority (FSA) is an independent non-governmental body, given statutory powers by the Financial Services and Markets Act 2000 that regulates and is financed by the financial services industry in the UK. Formed originally as the Securities and Investments Board Ltd (SIB) it changed its name to the FSA on 28 October 1997 and regulates banks, insurance companies and financial advisers and has regulated mortgage business from 31 October 2004 and general insurance (excluding travel insurance) intermediaries from 14 January 2005.

Many professionals do not need to be regulated directly by the FSA in most circumstances. The professions which are exempted include:

• The Law Society of England & Wales;
• The Law Society of Scotland;
• The Law Society of Northern Ireland;
• The Institute of Chartered Accountants in England and Wales;
• The Institute of Chartered Accountants of Scotland;
• The Institute of Chartered Accountants in Ireland;
• The Association of Chartered Certified Accountants;
• The Institute of Actuaries;
• The Council for Licensed Conveyancers;
• The Royal Institution of Chartered Surveyors.

Thus, by way of example, most solicitors are not regulated directly by the FSA, relying instead on the Part XX Exemption in the Financial Services and Markets Act 2000 which deals with provision of financial services by members of the professions, and which allows solicitors to carry on certain incidental financial services for their clients. Instead, the majority of solicitors are subject to:

• the Solicitors’ Financial Services (Scope) Rules – which set out the scope of the activities which solicitors not authorised by the FSA can undertake under the Part XX exemption, and
• Solicitors’ Financial Services (Conduct of Business) Rules – which apply to all firms relying on the Part XX exemption and which regulates exempt regulated activities can be carried on.

Note that most of the rules also apply to firms who are authorised by the FSA, in respect of their non-mainstream regulated activities.

Authorisation by the FSA

If a firm is not one of the exempted professions, or is carrying on work outside of the scope which can be carried on under such an exemption, then that firm may have to consider obtaining FSA authorisation in order to be able to provide financial services of that nature. The regulated activities that may be carried on under the terms of an exemption are therefore restricted (see section 327(6) of the Act (Exemption from the general prohibition) (the Non-Exempt Activities Order)). Accordingly, under that section, a person may not, by way of business, carry on any of the following activities without authorisation:

• accepting deposits;
• effecting or carrying out contracts of insurance;
• dealing in investments as principal;
• establishing, operating or winding up a collective investment scheme;
• establishing, operating or winding up a stakeholder pension scheme or a personal pension scheme
• managing the underwriting capacity of a Lloyd’s syndicate as a managing agent at Lloyd’s;
• entering as provider into funeral plan contracts;
• agreeing to do certain of the above activities.

Some regulators, such as the SRA, have produced specific lists of what those regulated by them may not undertake. For example, The SRA provides in section 3 of the Solicitors Financial Services (Scope) Rules 2001 as follows:

A firm must not carry on, or agree to carry on, any of the following activities:

1. market making in investments;
2. buying, selling, subscribing for or underwriting investments as principal where the firm:
   1. holds itself out as engaging in the business of buying such investments with a view to selling them;
   2. holds itself out as engaging in the business of underwriting investments of the kind to which the transaction relates; or
   3. regularly solicits members of the public with the purpose of inducing them, as principals or agents, to enter into transactions and the transaction is entered into as a result of the firm having solicited members of the public in that manner.
3. buying or selling investments with a view to stabilising or maintaining the market price of the investments;
4. acting as a stakeholder pension scheme manager;
5. entering into a broker funds arrangement;
6. effecting and carrying out contracts of insurance as principal;
7. establishing, operating or winding up a collective investment scheme;
8. establishing, operating or winding up a stakeholder pension scheme or a personal pension scheme;
9. managing the underwriting capacity of a Lloyds syndicate as a managing agent at Lloyds;
10. advising a person to become a member of a particular Lloyd’s syndicate;
11. entering as provider into a funeral plan contract;
12. entering into a regulated mortgage contract as lender or administering a regulated mortgage contract (unless this is in the firm ‘s capacity as a trustee or personal representative and the borrower is a beneficiary under the trust, will or intestacy);
13. entering into a regulated home purchase plan as provider or administering a regulated home purchase plan (unless this is in the firm’s capacity as a trustee or personal representative and the home purchaser is a beneficiary under the trust, will or intestacy);or
14. entering into a regulated home reversion plan as a provider or administering a regulated home reversion plan (unless this is in the firm’s capacity as a trustee or personal representative and the reversion seller is a beneficiary under the trust, will or intestacy).

Getting FSA Authorisation

Any firm that needs authorisation can apply to the FSA for this. This process is set out on the FSA web site and there is in addition a helpful guide entitled “Applying for authorisation”.

In order to make an application a firm will need to:

• prepare and collect various supporting documents;
• build an application pack using the FSA online system – there is a link on the “How do I get authorised” web page;
• fill in the forms in the application pack;
• return the forms to the FSA with the fee and the required supporting documents.

The FSA will then assess the application and the inform the firm of its decision. In most simple cases this should take about two or three months although the more complete the application form is, the quicker it should be processed. Note that there are certain minimum standards, called threshold conditions, which firms must meet in orer to be registered. There is also a one-off, non refundable application fee for processing your application which is based upon whether the application is straightforward (?1,500), moderately complex (?5,000) or complex (?25,000). Most financial advisers, mortgage brokers and general insurance intermediaries will be straightforward applications.