Another important player in the corporate governance institutional framework in the UK is the Financial Conduct Authority. However, there is a relationship between the FCA and the FSA that should be mentioned briefly in the context of the Financial Conduct Authority. The FSA was an independent non-governmental body funded by the firms that are regulated by it, and accountable to Treasury Ministers and Parliament. Under the Financial Services and Markets Act 2000 (FSMA), the Financial Services Authority (FSA) had statutory powers. However, these powers have been replaced by the introduction of the FCA, as the FSA –which has been in operation since the 1997- became two separate regulatory authorities in 2013. Sections 3-6 of FSMA 2000, which was amended by the FSA 2010, has illustrated its regulatory objectives, including market confidence, financial stability, consumer protection and reduction of financial crime, as well as "Contributing to the protection and enhancement of the stability of the UK financial system".254 Generally speaking, in terms of supervising and managing the financial services industry and banking, 'a new regulatory framework' has been created through the introduction of the Financial
Services Act 2012.255 So, one of the FSA tasks was overseeing the compliance with 2006 Code.256
In terms of admitting securities to listings as well as making the Listing Rules and supervising compliance, the competent authority in the UK was the LSE until May 2000. However, the Financial Services Act 1986 has been replaced by the issuance of the Financial Services and Markets Act 2000. Thus, the Listing Authority has been passed to the Financial Services and Markets Act 2000 as stated in section 72, and remained so for around 13 years, ending with the introduction of the Financial Services Act 2012. In fact, the introduction of the Financial Services Act 2012 could be a reflection of the regulatory reforms that followed the start of the financial crisis in 2007. Therefore, the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) are the new two regulatory bodies which were previously the FSA.257 The Financial Conduct Authority has inherited the responsibility of the UK Listing Authority.258
255 J Roberts and E Tran, Financial Services Act 2012: A New UK Financial Regulatory Framework
(Harvard Law School, Harvard 2013).
256 P Yeoh, 'Corporate Governance in the UK: A Time for Reflection' (2015) 36 Business Law Review
130.
257 It is worth mentioning in this context of the Prudential Regulation Authority that in 8 April 2016,
the PRA imposed a fine of 1.385 million pounds on Qatar Islamic Bank QIB UK for failings in reporting its financial resources to the regulator in 2011 and 2012. See: http://www.bankofengland.co.uk/publications/Pages/news/2016/044.aspx for more details.
Moving on to the FCA, the impact of an institution like the FCA will be reflected in the financial markets and the business environment, as the goal of the FCA is to make sure that a fair deal will be available to consumers. The FCA’s approach to achieving this is by ensuring the good working of the financial markets. First of all, this involves ensuring the integrity of firms in the financial industry; secondly, supplying consumers with suitable services and products, and finally, increasing the trust that firms are working in the best interest of consumers.259 More than 70,000 businesses are currently regulated by the FCA, including many of them being under consideration of whether they meet prudential standards, in order to decrease the chance of potential harm being caused if they fail, for both consumers and the industry.
In order of giving authorisation, the first step taken by the FCA is to assess the firm or individual, and whether they will meet the expectations of the FCA, and the risk that will be posed to the objectives of the FCA. Therefore, if the firm or individual does not meet the standards of the FCA, they will be prevented from entering the market. Practically, the FCA’s early intervention, when poor behaviour has occurred in the firm or by an individual under the FCA’s supervision, would prevent the harm from reaching consumers and markets. One of the FCA’s objectives is to make sure "consumers are at the heart of a firm’s business".260 The FCA enforcement powers are used to prevent firms and individuals who do not follow the FCA rules from reaching the stage where damage could occur to confidence in the financial markets, consumer
259 Financial Conduct Authority official website, 'Financial Conduct Authority' (FCA 2015)
<http://www.fca.org.uk/about> accessed 1/9/2015.
interests, or the integrity of financial markets.261 In the context of the linkage between corporate governance and the business environment, the FCA plays a crucial role in enhancing the market’s integrity in order to have transparent and open markets in which consumers can place their trust. The FCA does that by supporting the financial system, which can be described as successful and healthy.262 It is not one of the FCA roles to assess the companies’ responses to corporate governance code. However, while it could be difficult to assess the occurrence of contravention, FCA could “penalise a failure to comply or explain on the basis that it would be a contravention of the Listing Rules”. 263
The influence of the FCA goes beyond being local to the UK only, to involving not only European countries, but also on the international level. The fact that the financial markets of the UK, in terms of integrity, rely on the European and international financial systems’ security and activity, makes its involvement in this influence of international policy important. Given that, European policy developments play a crucial role in some of the UK markets and wholesale regulations.264 There are several examples of the FCA’s contribution towards multilateral forums and policy
261 Both the rules and practices of good corporate governance ensures the principles of accountability,
transparency and fairness which help to ensure integrity of financial markets. See: B Witherell, 'Corporate Governance and Responsibility: Foundations of Market Integrity' (2003) OECD Observer 7.
262 Financial Conduct Authority official website, ' Our approach to regulation ' (FCA 2015) <
http://www.fca.org.uk/about/what/regulating > accessed 1/9/2015.
263 A Keay, 'Assessing Accountability of Boards under the UK Corporate Governance Code' [2015]
Journal of Business Law 551.
264 Financial Conduct Authority official website, ' Enhancing market integrity ' (FCA 2015)
making processes, for example the Financial Stability Board (FSB), the International Organisation of Securities Commissions (IOSCO), and the Basel Committee on Banking Supervision (Basel).265 In fact, there is an important issue with regard to the FCA being an independent body (in comparison to the Saudi institutional framework).266 Being a completely independent body means the FCA is not funded by the Government; the FCA instead receives funding from the fees of the firms that are regulated by the FCA by performing the firms’ financial activities. However, the FCA is accountable to the Treasury.267