What is the Financial Conduct Authority?

Financial Conduct Authority, commonly referred to as FCA, is the UK’s primary regulatory body that is responsible for regulating financial services firms and markets. The authority’s core objective is to ensure markets work well. This is accomplished with its operational objectives that involve consumer protection, fair competition, and financial system integrity.

Under the powers granted by the Financial Services and Markets Act 2000, entities offering regulated financial services such as payment services, investment services, securities, and electronic money issuance in the UK must be authorized by the FCA.

In 2024, the financial regulator had 188 active enforcement operations that involved 162 firms to counter financial crimes.

Core Responsibilities of the Financial Conduct Authority

The authority regulates about 42,000 firms. As part of its functions, it supervises firms in a way that is compatible with its strategic and operational goals.

Key responsibilities of FCA:

• It regularly monitors markets to combat insider trading, market abuse, and manipulative practices.
• It ensures regulated firms follow established rules and regulations and take enforcement actions where violations are identified.
• FCA regularly audits to ensure regulated firms like electronic money & payment institutions and consumer credit providers adhere to Anti-Money Laundering Regulations as well as consumer protection, prudential standards, and business standards.
• The financial regulator of the UK sets rules, standards, and policies for regulated financial firms to protect consumer interests and promote transparency and fair competition in the market.
• The Authority publishes a “Handbook” of rules and guidance, which includes all its legal instruments and changes in a consolidated view.
• FCA prioritizes the regulation of areas and firms that pose a higher risk to its key objectives, proportionate to their size and impact on consumers.

FCA Guidance on Key AML Compliance Requirements

The Financial Conduct Authority has published the Financial Crime Guide (FCG) to help firms comply with AML regulations, which aim to mitigate financial crimes. Under this guide and associated regulations, financial institutions should:

• Conduct Risk Assessment: Firms must conduct a comprehensive business-wide assessment of the risk of financial crimes associated with their operations. This depends on the geographical areas it operates in, the type of customers it serves (e.g., PEP), the distribution channels it uses to serve customers, and the type of products or services it offers.
• Screening against sanctions: The primary requirement of complying with the FCA regulation is to regularly screen the customers against the updated sanction databases.
• Greater Scrutiny of High-Risk Clients: FCA guidance mentions that firms must apply enhanced due diligence in specific scenarios, such as those involving correspondent relationships, politically exposed persons (PEPs), or where a client is associated with a high-risk third country. This includes obtaining their source of funds, source of wealth, and ongoing monitoring of transactions.
• Risk-based Approach: The firms must assign appropriate risk scores to their customers to ensure risk-based application of due diligence measures. This can be achieved with data-driven AML software to identify high-risk entities before any risk materializes.
• Maintain Record: The firms are mandated to keep customer, transactions, and due diligence records for a period of 5 years after closing any account.

How to Get Authorized By FCA UK

Almost all financial services in the UK need to be authorized by the Financial Conduct Authority. It maintains a Financial Services Register where you can search all entities and individuals, along with the approved services they can provide.

To get authorized, firms must submit an application with all relevant documentation to the FCA. Before submitting an application, you should demonstrate that you can and will:

• Comply with the principles of business
• Rules mentioned in the FCA handbook
• Maintain minimum standards at all times

After an application is submitted with complete required information, it is likely to get assessed within 3 to 6 months.

Best Practices for FCA Compliance

FCA compliance is critical for the UK financial sector as it protects consumer rights and prevents market abuse. However, firms face several challenges when it comes to meeting the FCA’s regulatory standards. To overcome these challenges, some effective approaches include:

• Review the FCA handbook to understand your regulatory obligations and stay updated.
• Implement a compliance program that includes policies, procedures, and controls.
• Identify your risks related to Anti-Money Laundering (AML), market conduct, consumer protection, and cybersecurity, and use them to update your compliance strategies and controls.
• Provide regular training to employees on FCA rules and expectations, data protection (UK GDPR), and ethical behaviors.
• Maintain comprehensive records as required by FCA and submit timely and accurate reports.
• Conduct regular assessments and internal audits to test the effectiveness of FCA compliance and remediate any identified issues.
• Use technology-driven AML solutions to automate transaction monitoring, sanctions screening, risk assessment, and reporting.

Ensuring compliance with constantly evolving AML regulations and FCA standards can be challenging for regulated financial firms in the UK.