Introduction
Financial services sectors have evolved over time to present complex and valuable services to customers in the modern day compared to the earlier days. That owes to advance in areas such as technology, regulation as well as service innovations. With that, this study seeks to provide a case analysis of the UK financial services, analyzing how it has evolved and impacted on the providers as well as the customers. To achieve the objective, the analysis begins by stating the case question and its rationale in terms of relevance in the modern day followed by the history of the sectors regulation. Then the report provides an overview of some of the regulatory frameworks and their implimentors.
Study topic
The case analysis focuses on the UK financial services with an aim of providing an overview of how it has evolved over time. In that respect, the study topic for this case study is the UK Financial services
Question and rationale
The study seeks to answer the question How has the UK Financial services evolved in terms of regulation to enhance customer relationships? The question is relevant given the many changes that sectors undergoes in terms of regulatory frameworks and the impacts that such changes have on the industries stability as well as customers relationships.
Financial regulation history
FSA was incorporated in 1985 by the investment board and had a FS Act passed in 1886 for the FSA purpose of governing the industry that had been dividend into The Financial Intermediaries, Managers and Brokers Regulatory Association, Personal Investment Authority and Securities and Futures Authority. However, the self regulation ended with the collapse of banks such as the Barrings Bank. In October 1997 SIB was changed to FSA and began exercising the statutory powers that are provided by Financial Services Markets Act of 2000. FSA then took over the SFA that had self regulated trading of futures and shares in UK market. Further to regulating banks, the insurance companies as well as financial advisers, FSA regulated the mortgage business beginning October 2004. It also regulated the insurance intermediaries in exclusion of the travel insurance beginning the January 2005. The FSA of 2012 resulted to abolishment of the FSA.
Financial Services Markets Act of 2000 imposed statutory objectives on the FSA including:
Market confidence: Sought to maintain confidence within the financial system
Financial stability: Sought to contribute to protection as well as enhancement of the stability in the financial system in the UK.
Consumer protection: Sought to secure the suitable protection for the consumers
Financial crime reduction: Sought to reduce extent possible for business to be carried out by regulated persons and commit financial crimes or be inappropriately used for the same by others (Brad, 2010).
The Act had addition requirements on FSA to Contribute to protection as well as enhancement of stability in the financial system in the UK. Finally, the FSA of 2012 led to abolishment of the FSA replacing it with new structures (FSA., 2016a).
Financial services and consumer relationships
Financial risks included uunemployment, incapacity and difficulties earning an income. Others included welfare state risk in protecting its citizens’ economic as well as social wellbeing. On the other hand, the consumer needs included lifestyle changes that impacted on relationships between the consumers and financial services (Colin & Alan, 2006).
As a means of mitigating the risks, a number of pensions were developed including the occupational pensions, state pension that are provided to employees by employers, personal pensions that are provided by the commercial services providers to the individuals with aim to establish private pensions administered by the providers. They were good for the self employed people moving from one contract to another (Chris, 2011).
Further, meeting financial risks with the consumer needs was sought through various means such as independent financial advisors and establishment of mechanisms to address financial risks financial advice, state benefits, planning, credit finance, financial protection, mortgages, estate as well as tax planning and the investment (Kevin, 2010).
However, there were dangers that included comission’s bias that could lead to the financial advisors unethical behaviour or to the behaviour by financial services providers towards consumers. The bias symptoms include poor transparency on financial product fees and charges, poor clarity on the consumers benefit mostly the retail investment services and products, poor understanding of the sold products and selling wrong financial services and products to the consumers as well as poor quality of advice to the consumers (FSA., 2016b).
Contract legislation
Much of the financial service sector contracts seeking to protect income and estates are marked by trusts. Trusts reflect legal arrangements where assets, investments, money and properties are managed through the trustees for benefit of the others like people with the learning disabilities (Bennett, 2004). The trusts also solve the estate planning issues that include the following:
Ensuring that the individual family financial needs are catered for after their death.
Minimizing the tax exposure in regard to the estate through gifts now out taken out of estates whilst retaining ability to decide on the allocation of the estate at later stages.
FCA and PRA supervisory objectives: Principles and processes
FCA
FCA approach to regulation entail a more proactive as well as intrusive, earlier intervention on the life span of a product, addressing problems’ root causes for consumers, promoting greater and better competition through:
Provision of better services, products and value that customers needs and want.
Promoting innovation as well as development of the new products that meets the consumers’ needs rather than exploit them (Ian, 2016).
Regulating activities and performance
For ensuring performance of the regulated activities, FCA has enforcement divisions called the Regulatory Decisions Commission that has the power to:
Refuse the approved person the status.
Alter the approved firm description which would need fundamental change for the activity operations continuity.
Prevent individuals from applying for approval.
Make public misconduct charged of the individuals.
Censuring publically the authorised persons’ misconduct.
Exercise the FCA powers for imposing penalties.
Enforcement notices
FCA may issue the warning notices for approved firms or individuals regarding actions that can be taken. The recipient has the right for representation for purpose of disproving the allegations.
FCA may publically announce the decisions for disciplinary actions against a firm or an individual.
FCA may issue the decision notices providing details on actions that can be enforced, leaving open that possibility that the accused could appeal on that decision. It can also issue more decision notices involving agreements between FCA and the individual regarding different action than originally proposed.
Can issue the supervisory notices detailing action that have been taken by FCA involving limiting actives the firm has authority to undertake.
Can issue the final notices as well as notices of the discontinuance where the former details of final action to notify individual of no further course of actions. Disciplinary action would depend on.
Whether it was deliberate or reckless
Whether the activity could cause systemic risk and weakness to internal controls of a firm
Whether there is loss potential for customers
After breach reporting, it would identify whether
The firm responded quickly and took remedial steps after the uncovering
How quickly the breach was reported to FCA
What a previous regulatory issue or record for the firm or individual
Regulatory infrastructure of the UK financial services FCA would need information for undertake thorough investigation to activities of firm in form of reports from competent persons or from authorised firms.
Finally, the FCA could use its intervention powers that come as temporary intervention in its role of intervening earlier and dealing with problems root causes as well as preventing systemic spread problems that could be threats to the market’s integrity. The FCA has powers to ban or remove the misleading financial information and promotion from a market (FCA, 2016).
PRA
On the other hand, PRA judgment regulation involve an emphasis on the forward looking evaluation including assessment of was by which firms were to be addressed if they fail, emphasis on impact of failure on wider system as well as the public funds use. It also emphasised on addressing the risks before they become problems in addition to having a new framework for risk assessment (Simon, 2016).
The PRA has responsibility for prudential regulation for banks, credit unions, building societies, insurers as well as major firms in investment. The authority aims to achieve to develop well rounded, comprehensive and robust views of the firms, through supervision and judge whether their operations are run in sound and safe manner, as well as identify whether insurers protect their policyholders suitably.
Consistent with the focus on major risks related to its objectives, PRA divides firms under its supervision into five groups depending on the potential impact, frequency as well as intensity of the supervision needed.
While the PRA has the prudential responsibility over all deposit taking institutions, significant firms in investment and insurers, FCA is a prudential supervisor serving most firms in financial services sector. Thus it supervises firms such as the asset managers, insurance and mortgage brokers, and financial advisers.
PRA approach seeks to minimize harm for consumers as well as the wholesale financial market participants while enhancing market stability whenever firms face financial distress or operate in disorderly manner. The authority’s starting principle states that, when firms fail, there should be no interference rather should be left and allowed to in a manner that is orderly, regardless of the size.
The agency allocates firms singly regulated by FCA in one of the three prudential groups as follows:
P1: Firms whose collapse could cause lasting as well as widespread reputational and financial damage to the customers, marketplace beyond and client assets. Those are subjected to periodic assessments on capital and where applicable, liquidity with the assessment being conducted by the PRA prudential specialists after every 2 years.
P2: Firms whose collapse in a disorderly manner would damage the clients’ assets as well as consumers but that which can be easily addressed compared to the collapse of the P1 firms. The firms are subjected to periodic assessments on capital and liquidity where applicable, conducted by prudential’s specialists after 4 years.
P3: Firms whose collapse disorderly or otherwise are unlikely to have any significant damage to the consumers or the market integrity. The firms’ supervision is on reactive basis (FCA, 2016).
Regarding its own performance, the PRA normally seek input from firms on effectiveness as well as quality of supervisory framework and the approach. That has been through several means that include its annual survey. The latest being the 2014/15 survey involved participation by 78 firms and overseen by its oversight function while being chaired by the senior advisors for independence maintenance (Bank of England, 2016).
Conclusion
In view of the analysis, it is clear that the UK financial services sector has undergone much transformation seeking to enhance the service delivery and ensure the industry’s stability. With that, there have been various regulatory authorities that have sought to ensure that the concerned firms adhere to the set standards for the interest of the consumers. That has resulted to development of competitive products that address customers’ needs in a competitive market marked by diverse service providers.
Reference list
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FCA., 2016. How we Supervise firms. [Online] Available at <http://www.fca.org.uk/about/what/regulating/how-we-supervise-firms[Accessed> 10 March 2016].
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