Introducing the FSA and Regulation

Who is the Financial Services Authority?

The Financial Services Authority, or FSA, is a non-governmental agency responsible for the regulation of much of the UK Financial Services Industry. It was established in 1997 and since then has gradually increased the scope of its regulatory responsibility.

What does it do?

The FSA has 4 key objectives:

  • To maintain confidence in the UK financial system
  • To promote public understanding
  • To protect customers
  • To reduce financial crime

What additional areas do the FSA now regulate?

In 2001 the government announced that the FSA was to take over responsibility for the regulation of:

  • Mortgage advice and mortgage arranging
  • The selling and administration of general insurance and non-investment life assurance

Regulation took affect for Mortgages on the 31st October 2004 and for General Insurance on the 14th January 2005.

What regulation means for brokers - why do i need to do anything?

You are unable to conduct mortgage or insurance business unless you are authorised or exempt. Therefore assuming that you want to trade you have only 2 options. You can either be Directly Authorised with the FSA or you can become an Appointed Representative.

I want to be directly authorised. What do I need to do?

You will need to contact the FSA to register with them. The FSA will ask you to provide certain details to them about your employment history and your financial status. They will also ask for evidence that you have appropriate systems and controls in place in order to adhere to the regulations. Assuming that the FSA are happy with your application then they will approve your firm.

I want to become an Appointed Representative. What will I need to do?

You will need to find a firm that is prepared to act as your principal. A principal will be an authorised firm who takes responsibility for the compliance of its Appointed Representatives. The principal firm will undertake certain checks on you to satisfy themselves that you are 'fit and proper' and if they are happy will then advise the FSA of your appointment. There are a number of principal firms in the market and you will need to ensure that you choose the one that best fits your business model.

Can I be directly authorised for some of my business and an Appointed Representative for other parts?

No. You must be directly authorised for all or an Appointed Representative for all. If you wanted to 'mix' your regulation then you would need to split your firm into separate legal entities.

Which route should I choose?

This is a decision that you will have to make for yourself, once you have considered the various advantages and disadvantages of each route. You should not rush into a decision as the choice that you make will be an important determinant on how your business progresses in the coming years. Below we have provided some examples of questions that you may want to consider in order to help you make your choice:

Thinking about being directly authorised?

  • Have I got access to competitive PI insurance?
  • Have I got the time and resources to complete the FSA application form and ensure that I adhere to their regulations?
  • Do I have sufficient resources to meet the FSA's capital adequacy requirements?
  • Have I fully calculated the cost (money and time) of compliance with the FSA's rules?
  • Can I still make the necessary profits that I need?
  • Do I have staff with the necessary skills and knowledge required to grow my business?

Thinking about becoming an Appointed Representative?

  • Am I prepared to give up a percentage of my income to a principal to pay for their services?
  • Can I find a principal that 'fits' my business model?
  • Will the principal be able to offer me 'added value'?
  • Do I need/want the additional business and skills development training that a principal may be able to offer?