The Financial Conduct Authority (FCA) perimeter determines which firms require authorisation and dictates the level of protection consumers can expect for the financial services and products they purchase. The regulator has issued a first report on the perimeter and how it affects its supervision activities.
Authorised firms can still conduct certain activities that do not fall within the perimeter.
In part, the perimeter is determined by legislation which the FCA cannot directly influence.
When firms design new products, an assessment needs to be carried out of whether these would be regulated, or whether the activity would be non-regulated and fall outside the perimeter.
The FCA is concerned that firms may try to avoid the perimeter, and thus avoid being regulated. It adds that some firms operating on the edges of the perimeter have recently caused serious harm to consumers, such as firms who issue mini-bonds, for which it is generally accepted both that the product is not FCA regulated and also not covered under the Financial Services Compensation Scheme (FSCS). In these circumstances, the FCA comments that investors may be able to pursue legal claims if the information the firm gave them is incorrect or if it conducts its business in a different way from that originally set out.
Technological advances are likely to mean the perimeter is tested more frequently. However, the FCA adds that it is examining whether some FSCS protection may be available to people who purchased mini-bonds, on the grounds that the firm may have given them advice to purchase these products, and of course giving investment advice is a regulated activity.
The actions of tech firms that develop financial services products and services could give rise to a risk of consumer harm, even if the tech firm does not need FCA authorisation.
Even if it is accepted that a particular service carried out by an authorised firm is non-regulated, the FCA can still intervene under its objective to promote effective competition.
The FCA has the power to intervene, using injunctive powers, and enforce sections of the Consumer Credit Act 1974 concerning unfair credit relationships. It can do this even if the credit agreement in question is not FCA regulated.
The Senior Managers & Certification Regime will allow the FCA to take action against an individual at an authorised firm for certain activities that fall outside the perimeter.
If the FCA discovers fraudulent activity in an authorised firm, it may conclude that the firm is not fit and proper, even if the fraud does not relate to its regulated activities. It gives the example of a veterinary practice offering pet insurance. If a fraud was discovered that related to the practice’s core activities, the FCA may still decide that the firm is not fit and proper and would consider removing their authorisation and prohibiting senior management.
The FCA has gained powers to regulate areas such as consumer credit and claims management, and the Government has now proposed adding funeral plan regulation to its remit. The FCA acknowledges that it may in time be asked to regulate additional areas, but that this is an issue for the UK Parliament, and for the EU for as long as the UK remains a member.
The FCA can intervene if an unauthorised firm strays into regulated activity, such as an introducer firm that strays into giving advice and/or arranging.
Some activities that are fully FCA authorised do not provide any FSCS protection, e.g. consumer credit, claims management, some BTL mortgages.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.