The Financial Services Authority (FSA)

Running head- REGULATORY COMPLIANCE ADMINISTRATION
Regulatory Compliance Administration
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Regulatory Compliance Administration1
I. International Regulatory Situation
The Financial Services Authority (FSA) was a quasi-judicial authority that was
responsible for the regulation of the laws and principles of the Financial Services industry in
the United Kingdom. During the period between 2001-2013, it regulated all the financial and
banking services. However, due to the emerging financial crisis during 2008, (Chen, Filardo
and Zhu, 2016), the UK government decided to reconstruct the financial regulation that
resulted in the abolition of Financial Service Authority (FCA) with the new Act of Financial
Service Act 2012 that later regulated the financial services. The primary purpose of the study
is to understand the shortcomings of the Act and the root cause of its abolition. Further, this
study discusses the approaches that can be used for the regulation of financial services.
The Financial Service Authority was responsible for the role of regulating all the
financial services that governed the U.K. The primary role of such authority was to regulate
the banking institutions, financial consultants, and various other companies who were
engaged in the activity of finances (Humayun 2017). This authority was previously known as
the Securities investment Board who regulated the finance sectors, and later, it adopted the
name of FSA. It was based upon the idea of the principle approach as a method to regulate
financial matters. The primary purpose of such authority was to encourage market confidence
in the U.K, by protecting the consumers from exploitation and by reducing the occurrence
and incidences of financial crimes. It followed the codified principles of proper regulation.
The main objective was to ensure the protection and reduction of crimes through the usage of
those principles. It initiated the notion of principle-based regulation and was one of the first
supervisory bodies in encouraging the prominence of performance measurements for
financial guidelines (Lewis and Lindley 2015). FCA followed eleven principles that included
doing the business with integrity, diligence to carry out the work, excellent management
skills, financial prudence, proper conduct, the interest of the clients, and the communication

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with them. However, the financial crisis that the U.K suffered between 2007-2008 changed
the fate of the usage of such a principle-based approach.
The financial crisis was a result out of the rapid increase in the availability of quick
credit, high prices, deregulation of the banking rules, and the zeal for the high profits leading
to the massive fall of such an approach (Rakoff 2014). The leading cause for such was the
principle guideline that the banking system followed and not any distinct rule and had no
strict guidelines for its breach. As a result of this approach, the FSA maneuvers were
administered and analyzed by the Parliamentary committees. The picture of the financial
institution before the crisis was following the principle-based approach. However, later it
became an obligation of the firms themselves in order to behave responsibly. As there were
no proper rules or guidelines, the maintenance of the financial sectors with the principles only
became very difficult. The fall of Northern Rock Bank can be an example of the failure of the
principle-based approach. The bank faced many financial problems due to the mortgage crisis
and the devaluation of the shares. As a result, lots of people lost their money and at the bank
was shut down by the government. The principle model was based on rules that were implied
upon the regulators to follow. This approach lacked the liability to comply with those rules as
there were no sanctions for that. After such a financial crisis of 2008, the government
officials revised the regulatory structure of the U.K by introducing The Financial Service Act,
2012, and dissolving the FSA that was regulated before. The principle approach that the Act
followed included the rule-based model (Dermine, 2014). Two new agencies were created out
of the act that was the Financial conduct authority and the Prudential Regulation Authority.
The duties of the authorities were divided. One authority looked after the financial markets
protecting the consumers, and the duty of others was to regulate the working of the banks.
The Prudential Regulation committee comprised of the decision-making body. The use of a
rule-based approach emerged with the enactment of the Act.

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In a practical scenario, the rule-based approach is much easier to enforce. There are
specific rules set which are meant to be enforced. A rule-based approach helps to regulate the
given set of rules. The rule-based approach helps in proper regulation of the statues
concerning the better implementation of the law and the statutes. It maintains the stability and
balances the administrative bodies to perform specific functions. The rule generally helps in
the application of the system correctly or accurately that in turn, helps in the establishment of
concrete governing bodies. For example, with the new governing bodies, there was also a
development of a new system for governing the financial sectors. A rule-based approach
requires less skill and interpretation. However, the principle-based approach was more
dependent on the implementation part of the authorities, which they failed to do. In today’s
world rule-based approach is the appropriate way of conduct or is the better way to control
such vast sectors like the financial sector. Due to the introduction of such rules and the
governance of rules-based theories following them and their implementation became much
more manageable. Principles require a way of understanding and the interpretation of how an
organization should work, whereas regulations are codified, which in turn helps in the proper
implementation of the way of conduct that a person must follow.
The principle-based model was a model for yesterday’s generation, but today’s
generation depends upon the rules-based approach. With the intervention of such approach
the governance of the business structure, remunerations, handling clients, custody of funds
and other processes became easy to update. As in such an approach, the regulations that
ought to be followed are explicitly mentioned to regulate the outcome that the organization
needs to determine. In another scenario of the Royal Bank of Scotland and Lloyds, the
company collapsed due to a lack of proper administration. However, reports state that Lloyds
did not collapse or resulted in bankruptcy but together with the HBOS in 2009, the UK