Supervision And Enforcement Powers Of The FCA

Question 1

The FCA supervision model is based on eight principles.

What are these principles?

Answer 1

1. Forward Looking –
   Identifies and prevents risks before they become major issues.
2. Focus on Business Models & Strategy – Assesses how firms operate and make money to spot potential risks.
3. Focus on Culture & Governance – Ensures firms have strong leadership, ethical values, and good internal controls.
4. Focus on Individual & Firm Accountability –
   Holds both firms and key individuals responsible for their actions.
5. Proportionate & Risk-Based –
   Focuses supervision on firms that pose the highest risks.
6. Two-Way Communication –
   Encourages open dialogue between firms and the FCA.
7. Coordinated Approach –
   Works with other regulators for a unified supervisory approach.
8. Fixing & Preventing Harm –
   Corrects past harm and takes steps to stop it from happening again.

Question 2

The FCA identifies three key pointers for its supervisory approach.

What are these main three key points?

Answer 2

1. The role of business models -
   The FCA analyzes how firms operate to identify risks early and predict potential problems.
2. The role of culture and individuals -
   The FCA examines what influences behavior within a firm.
   Managers are responsible for shaping culture and preventing harm.
3. The role of Prudential supervision -
   The FCA acts as the prudential supervisor for around 46,000 firms, ensuring they remain financially stable.

Question 3

What is FCA’s four step supervision process?

Answer 3

1. Identification of Harm –
   Spot potential risks before they cause damage.
2. Use Diagnostic Tools –
   Investigate why an issue is happening (e.g., reviewing records, analyzing trends).
3. Use Remedy Tools –
   Take action to fix the problem (e.g., imposing fines, requiring changes in processes).
4. Evaluation –
   Review whether the fix worked and ensure it prevents future harm.

Question 4

What powers does the FCA have to investigate firms?

Answer 4

1. The FCA can request information, require reports, conduct investigations, and access business premises.
2. Firms must make their records and personnel available to assist in investigations.

Question 5

What enforcement actions can the FCA take for rule breaches by firms?

Answer 5

1. The FCA can issue a private warning for minor breaches, or a public statement and financial penalty for serious breaches.
2. In very serious cases, it may issue a warning notice before a final decision to promote transparency.
3. If the FCA has serious concerns about a firm, it can also vary or cancel its Part 4A permission, which allows it to carry out regulated activities.

Question 6

What powers does the FCA have under the Financial Services Act 2012 (FSA 2012)?

Answer 6

1. The FCA can ban financial products that pose unacceptable risks to consumers.
2. Normally, it must consult the market, but in urgent cases, it can impose a 12-month temporary ban without consultation.
3. The FCA can also ban misleading financial promotions and require firms to remove them.
   A. It does not take action against the firm as a whole, just the specific promotion.

Question 7

How can a firm appeal on the decision taken by the FCA?

Answer 7

If a firm disagrees with an FCA decision, it can appeal to the Tax and Chancery Chamber of the Upper Tribunal, an independent body with rules set by the Lord Chancellor.

Question 8

What is the process that FCA needs to take in order to ban misleading financial promotions?

Answer 8

1. The FCA orders the firm to remove the promotion and provides reasons.
2. Firms can challenge the decision.
3. The FCA decides whether to confirm, amend, or revoke the ban. If confirmed, the FCA publishes the ban with reasons.
4. Firms can appeal to the Upper Tribunal if the FCA refuses to revoke the ban.

Question 9

The FCA also has the power to prosecute a number of offences through the criminal courts.

What do these offences include?

Answer 9

1. Carrying on a regulated activity without authorisation or exemption
2. False claims about being authorised or exempt.
3. Breaching financial promotion rules with regards to communicating an invitation to engage in investment activity
4. Obstructing FCA investigations or providing false information.
5. Misleading the FCA.
6. Insider dealing (Criminal Justice Act 1993).
7. Breaching money laundering regulations.