If you are thinking of starting a financial firm, no doubt you’ve had a lot of visits to the Financial Conduct Authority website. You need authorization from the FCA in order to even practice within your financial firm and individuals need to be authorized to work for you. The FCA is the authority on regulations within finance, which means you will be referring to them a lot. Designed to plug the systemic holes that caused the 2008 financial crash, FCA requirements have gotten a lot stronger than its predecessor, so it’s important that you know what you’re in for.
If you are considering starting a financial firm, take a look at the list of FCA regulated activities to see if you are going to be involved. Some of them might even surprise you.
Financial activities that are regulated
There is a long list of industry sectors that you can go into that are regulated by the FCA.
The full list is made up of claims management activities, consumer credit activities, benchmark-related regulated activities, designated investment business, electronic money, funeral plan contracts, insurance business and distribution, operating a dormant account fund, and home finance.
If your firm comes under any of these categories, you will need to be authorized by the FCA before you can practice. You can take a look at the FCA website to understand what each of the categories entail.
Individual activities that are regulated
The FCA requirements also cover individuals working in the finance industry. As mentioned, you have to be authorized by the FCA in order to work in finance, but there are FCA requirements to adhere to in order to keep your authorization.
There are outlined on the FCA site in a general sense. You are required to act with integrity, due care, skill, and diligence. You must treat customers fairly and with regard to their interests and you must keep up with market conduct standards.
Additional FCA requirements are covered by the Conduct Rules which are explained in more detail in the FCA Handbook, which can be found on the site. The Conduct Rules apply to staff in particular, encouraging positive advancements in the culture, policies, and overall standards of any given firm. They encourage putting the customer first and reporting negative behaviours.
The Handbook goes into more detail about the broader ways staff are expected to behave in order to practice in an ethical financial business. The point is to evoke individual accountability as an attempt to change wider cultures within financial businesses. It should be read in detail to understand not only what is expected of you but also what the consequences may be for not adhering to them.
Senior management activities that are regulated
However, staff members can only do what they are told by higher ups, and as the 2008 financial crash taught us, the problems within a firm can go all the way to the top. FCA requires that senior managers also adhere to their own more controlled and more precise set of regulations.
The FCA requirements for senior managers are created with responsibility in mind. Responsibility over your firm, your operations, your staff, and your customers.
The four main pillars of the senior manager FCA requirements are to ensure that your business is controlled well, compliant with the FCA requirements, any delegation is forwarded to a trusted individual, and disclose any information on misconduct and otherwise that the FCA would expect to see.
A full outline of what should be disclosed to the FCA can be found on the FCA website, but it mainly covers various forms of misconduct or information that could indicate misconduct, whether you suspect misconduct or you are simply handing over information that could or could not indicate misconduct. A failure to hand over this information could result in consequences for you and your firm as a whole.
What if you don’t comply?
The FCA requirements to stay compliant to financial regulations carry heavy consequences if they are not adhered to. Common consequences include a suspension of your authorization, which means you wouldn’t be able to practice either as an individual or as a firm, fines, which can be a lump sum or a percentage of your profits, restrictions and public statements about the misconduct that occurred.
All of these can be debilitating to a financial business. Without authorization you will not be able to practice until your suspension period is over. Fees can be big, with a simple GDPR violation leading to thousands of pounds in fines, or percentages that can close your profit margin.
And of course, the most valuable thing to a financial firm is its reputation. A public statement around misconduct can tarnish it forever.
The wider consequences are still being felt today from the lack of regulation around the 2008 crash. With misconduct in finance, higher ups were filling their pockets until the economy collapsed, leaving all of us with financial issues for years to come.
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