FCA and PRA Regulation: Authorisation, Supervision and Enforcement
This domain tests the regulatory lifecycle: how a firm obtains permission, how it is supervised, and what happens when it falls short. Questions often distinguish supervisory tools from enforcement powers, and ask who decides and who can challenge a decision.
Authorisation
Applicants must satisfy the threshold conditions in COND, including location of offices, effective supervision, appropriate resources, suitability and business model. Insurers are PRA-authorised and also need FCA permission; the PRA leads prudential matters, the FCA conduct. Firms must notify changes in control and material events.
Supervision
The regulators are risk-based and forward-looking. Tools include data requests, thematic reviews, firm meetings, and requirements to commission a skilled person report under s.166 - a supervisory tool, not a penalty. The FCA also uses its own analysts and can impose requirements or vary permissions.
Enforcement
Statutory powers include public censure and financial penalties (s.206), prohibitions (s.56), suspensions and restrictions, withdrawal of authorisation, restitution orders (s.384) and injunctions. Investigations run under ss.167–168, with powers to compel documents and attendance. Criminal offences include breach of the general prohibition, misleading the regulator, market abuse and insider dealing.
Decision-making and challenge
Enforcement staff investigate and issue warning notices; the Regulatory Decisions Committee, independent of the enforcement team, makes contested decisions. A firm may refer a decision to the Upper Tribunal, which can overturn or remit it.
Accountability
The SMCR places senior managers under a duty of responsibility; firms must allocate responsibilities and certify fitness and propriety. Breach of a conduct rule can lead to penalties, prohibition or a requirement to pay redress.
Worked example
A managing general agent's claims controls collapse and complaints rise. The FCA requires a s.166 skilled person report. The report confirms systemic failings, so the FCA issues a warning notice proposing a penalty and a restriction on new business. Because the firm contests it, the RDC decides; the firm may then refer the matter to the Upper Tribunal. Note the sequence: the s.166 report is supervision, only the later penalty is enforcement.
Traps that cost marks
- Describing a s.166 report as a punishment or as a finding of breach.
- Confusing the RDC with the enforcement investigation team.
- Believing the FCA can impose imprisonment; criminal sanctions come from the courts.
- Forgetting the Upper Tribunal route.
- Overlooking that insurers face dual PRA/FCA regulation on different questions.