Financial Services and Markets Act 2000
The FSMA 2000 (or Financial Services and Markets Act 2000) is a UK Act of Parliament which was responsible for creating the FSA or Financial Services Authority as the regulatory body for investment business, banking and insurance. Here we look at an overview of what the FSMA 2000 entailed when it was enacted on 14th June 2000.
The Purposes of the FSMA 2000
The FSMA 2000 was created with four primary purposes in mind.
These were the following:
• To form the FSA (Financial Services Authority)
• The make provisions for the regulation of financial markets and services
• To make provisions for transferring specific statutory functions that related to friendly societies, building societies, provident and industrial societies and some other mutual societies
• For other connected purposes
What is the FSA?
The Financial Services Authority is a non-governmental, independent, quasi-judicial body that is also a company that is limited by guarantee. Its purpose is to regulate the UK's financial services industry and its board has been appointed by the Treasury. When it is acting as the authority for the listing of stock exchange shares, it is called the UKLA or UK Listing Authority, responsible for maintaining the “Official List”.
The FSA's Statutory Objectives
There were 4 statutory objectives which were imposed by the FSMA upon the Financial Services Authority.
These were:
• Public Awareness – the responsibility for promoting better understanding among the public of the UK's financial system
• Market Confidence – the responsibility for maintaining public confidence in the UK's financial system
• Consumer Protection – the responsibility for securing proper protection for public consumers
• Reducing Financial Crime – the responsibility for cutting the extent to which any business carried out by a regulated body to be used for criminal purposes
The four statutory objectives were supported by some good regulation principles which the FSA must bear in mind when it discharges its various functions.
These principles include:
• Economy and efficiency – the requirement to use resources in an economic and efficient manner
• Management role – the senior management team of a firm is held responsible for all of its activities and also for ensuring that the business carried out is compliant with the regulatory requirements. This is designed to prevent any unnecessary FSA intrusion in the business matters of companies, holding senior managers responsible for control and risk management within their firm. Firms must also take care to indicate who is responsible for each element of their business and to adequately control and monitor the firm's affairs.
• Proportionality – any restriction imposed on the industry by the FSA has to be proportionate to any benefit expected to be received as a result. When making a judgement of this type, the FSA must take into account any cost to consumers and businesses
• Innovation – the desirability of facilitating innovative methods in conjunction with regulated financial activities such as allowing more scope for varying means of compliance in order to avoid undue restriction of market participants from being able to launch a new financial service or product
• International character – the desirability of helping the UK to remain competitive in the financial market. The FSA must take into account all international aspects of financial business as well as the UK's competitiveness through co-operation with regulators overseas in agreeing international standards and monitoring global markets and firms efficiently
• Competition – the requirement to minimise any adverse effects on competitiveness that could possible arise from any FSA activity and the desirability of boosting competitiveness between the companies that it regulates. This includes removing any unnecessary regulatory barrier to business expansion or entry. Innovation and competition considerations have a major part to play in the cost-benefit analysis work carried out by the FSA. The Treasury, the Competition Commission and the Office of Fair Trading all have a role to play under the FSMA 2000 when reviewing the potential impact of the FSA's practices and rules on competition.