The Financial Services Authority (FSA)
The Financial Services Authority was responsible for regulating the financial service industries in the United Kingdom from 2001 – 2013. It was a government independent regulatory body funded by companies within the financial services industry.
The History of the Financial Services Authority
The Financial Service Authority started in 1985 by the name of ‘The Securities and Investment Board ltd’. After numerous scandals arose in the 1990’s it was decided that ‘self-regulation’ of financial services should come to an end and the regulatory responsibilities should be consolidated under one body.
The name was changed to the ‘Financial Services Authority’ in 1997 and it was given power by the ‘Financial Services and Markets Act’ in 2000. The FSA was given responsibility for supervising and regulating the trading of shares and futures by taking over the role of the ‘Securities and Futures Authority’ (SFA).
Before being replaced by the FCA the Financial Services Authority had responsibility for regulating banks, insurance companies, financial advisors and the mortgage industry. This was before the time of payday loans as the online payday loans industry has only started growing rapidly in the past 5 years.
Due to the collapse of the UK economy and the devastating financial recession of 2007 under the FSA’s watch, the decision was made to restructure the regulation and hand responsibility to the Financial Conduct Authority (FCA) in April 2013.
The Financial Conduct Authority (FCA)
The Financial Conduct Authority also known as the FCA regulates financial firms in the UK and protects consumers against misconduct. Payday loans are one of the industry’s that the Financial Conduct Authority regulate. The head of the FCA is ‘Martin Wheatley’ who was previously enrolled as head of Hong Kong’s Securities and Futures Commission.
The History of the Financial Conduct Authority
The FCA received royal assent in December 2012 abolishing the Financial Services Authority (FSA) in April 2013. This act gives the Bank of England direct responsibility for the financial stability of the economy in the United Kingdom. The new regulatory structure brings together the Financial Conduct Authority, the Bank of England’s Financial Policy Committee and the Prudential Regulation Authority.
Regulatory Duties of the Financial Conduct Authority
The FCA regulates financial industries such as the payday loans industry. The FCA has the power to control the marketing of financial products by setting minimum standards and putting into place rules to maintain the integrity of financial products’ marketing and protect consumers. In the payday loans industry there is debate concerning the advertisement of payday loans before the TV watershed as these adverts are seen by children who then put pressure on their parents to take out a payday loan. The FCA has the power to decide if payday loans advertisements should be banned before the watershed.
The FCA has the power to set product standards within financial industries. One of the latest examples of the FCA setting standards in the payday loans industry is the introduction of price caps and setting maximum amount consumers can pay back when borrowing. For more details on the FCA regulations for payday loans due to come into play in January 2015 read this article.
The FCA has the power to investigate companies to enforce standards and ensure best practise and minimum requirements are being followed. In doing this they have the ability to ban financial products and promotions with immediate effect if they see the need.
In April 2014, the role of regulating the consumer credit industry was passed to the FCA from the Office of Fair Trading
The impact of the FCA
The financial conduct authority had a busy first year by setting standards and outlining their intent. See the info graphic below for more details; it includes the FCA announcing how they will be regulating the payday loans industry.
The Financial Policy Committee (FPA)
The FPA is yet another regulatory body under the Bank of England and has responsibility for monitoring the economic stability of the United Kingdom. By monitoring micro and macro economics they spot potential threats to the economy.
The FPC took over the responsibility for monitoring the United Kingdom’s economic environment from the Financial Service Authority in 2012. Identification of threats will be passed to the Prudential Regulation Authority (PRA) to be acted upon.
The Prudential Regulation Authority (PRA)
The PRA is another regulatory body formed as a result of the closure of the Financial Service Authority (FSA) with the responsibility to regulate, monitor and set standards in the financial industries. Owned by the Bank of England the PRA responsibilities are to ensure best practise is being followed by financial firms and protect policy holders, particularly in the insurance industry.
A healthy economy is one in which firms provide fair and needed financial services, it is the PRA’s responsibility to ensure this continues and to maintain a growing or stabilised economy.
The Prudential Regulation Authority takes an approach consisting of three main characteristics; Judgement based approach, forward-looking approach and a focused approach. The PRA will judge financial firms on their soundness by assessing their practices they follow and the services they provide to consumers. They will evaluate current and potential risks to the financial firms and intervene when necessary. The PRA will focus on companies and factors that pose a risk to the stability of the United Kingdom’s financial stability.
Non regulatory organisations affecting the payday loans industry
The Consumer Credit Association (CCTA)
The consumer credit trade association is the oldest credit trade association in the United Kingdom. It aims to speak on behalf of its members to governing bodies and regulators to ensure that new legislation is fair. They aim to protect industries from potential collapse as a result of new regulations.
They speak on behalf of their members to ensure governing bodies hear the voice of the industry before passing detrimental legislations.
Stepchange is a debt charity with the aim to help consumers who have unfortunately got themselves into unmanageable debt. They aim to raise awareness of the potential problems and hardship a person and family can face if they get into serious debt. By raising awareness of debt problems they aim to discourage the credit spending habit the society currently has.
Stepchange offer free debt advice to consumers and offer services to help them get on track to reduce their debts and eventually end up being debt free.
Services they offer to help people become debt free include;
A debt management plan whereby they can help you clear your debt by creating a repayment plan designed to be affordable and realistic.
They can arrange an Individual Voluntary Arrangement (IVA) whereby a consumer will pay back a reduced amount of debt over 5 or 6 years and the remainder at the end of this period will be written off.
Stepchange can help with a Debt Relief Order (DRO) if a consumer is on a low annual income and the debt is below £15,000.
Homeowners over the age of 55 can raise funds tax free by using an Equity Release against their property. Along with this they also offer free mortgage advice.
For more information on all the service they offer visit https://www.stepchange.org/
Many consumers can find themselves in serious financial hardship and taking a payday loan is not a sensible route out.