FSMA and the UK Regulatory Architecture
This domain tests the statutory framework - FSMA 2000 as amended by the Financial Services Act 2012 and the Financial Services and Markets Act 2023 - and how the FCA, PRA and the wider regulatory family divide responsibilities. Expect questions on the general prohibition, the regulators' objectives, and the statutory bodies that sit around them.
The regulators
- The FCA is the single conduct regulator and also prudentially regulates firms outside the PRA's remit.
- The PRA, a subsidiary of the Bank of England, prudentially regulates banks, insurers and major investment firms.
- Within the Bank sit the Financial Policy Committee (macroprudential) and the Prudential Regulation Committee.
Objectives
- FCA: a strategic objective plus three operational objectives - consumer protection, market integrity, competition - and a secondary objective on international competitiveness and growth.
- PRA: a general objective (safety and soundness) and an insurance objective (policyholder protection), with secondary competition and competitiveness objectives.
Scope of regulation
Regulated activities are defined by the RAO 2001 and are carried on in relation to specified investments. Section 19 imposes the general prohibition: no person may carry on a regulated activity in the UK by way of business without authorisation or exemption. Section 20 permits authorised persons; Part 4A permissions define what a firm may do. Threshold conditions must be met and maintained.
The wider family
FOS, FSCS and the Payment Systems Regulator are statutory bodies; the FCA and PRA must co-operate with each other and with them under memoranda of understanding. SMCR replaced the approved persons regime for most firms, with senior managers, certification staff and conduct rules.
Consequences of unauthorised activity
Breach of s.19 is a criminal offence (s.23). Agreements made in the course of unauthorised activity are unenforceable against the other party under s.26, though that party may enforce them; s.28 allows the court to permit enforcement and order restitution.
Worked example
A firm sells extended warranty cover without permission. It commits an offence under s.23 and the contracts are unenforceable against customers under s.26. A customer may still enforce the warranty. The firm may apply to the court under s.28 for enforcement and pay restitution, but the starting point is unenforceability - a point examiners test because candidates often assume the contract is simply void.
Traps that cost marks
- Assuming the FCA and PRA share every objective.
- Treating guidance as binding rules.
- Forgetting the territorial and "by way of business" limits in s.19.
- Saying unauthorised contracts are void rather than unenforceable under s.26.
- Overlooking the FSMA 2023 changes to the regulators' objectives and the designated activities regime.