Ex.8. Read the text about HM Treasury and dwell upon its role, aims and main responsibilities.

Her Majesty's Treasury (commonly known as HM Treasury) is the United Kingdom's economics and finance ministry. The Chancellor of the Exchequer is the most senior minister at HM Treasury and acts as the nation’s primary finance minister.

HM Treasury is the department responsible for formulating and implementing the UK Government's financial and economic policy. The Treasury's overall aim is to raise the rate of sustainable growth, and achieve rising prosperity, through creating economic and employment opportunities for all. Financial instability would adversely affect this aim.

The Treasury chairs the Standing Committee on Financial Stability, but it does not have operational responsibility for the FSA or the Bank. The Treasury’s interests in work on financial contingencies include:

• The economic disruption that would arise from financial instability.
• The cost, risk and benefit of a financial support operation involving provision of public capital or liquidity (sometimes termed a "lender of last resort" operation).
• Consideration of whether change in the law or in institutional structures may be appropriate.
• Ensuring the Financial Authorities' work links with Government's wider framework for building resilience and dealing with contingencies.

In a contingency, the Treasury’s main role is to ensure that ministers are kept informed of developments so as to be able to take key decisions without delay. In addition, the Treasury is responsible for ensuring coherence between measures taken in the financial sector and the operation of public sector continuity arrangements more generally.

HM Treasury has specific responsibility for:

• Liaising with other UK Government Departments and authorities, including the Cabinet Office Briefing Room (COBR) and law enforcement agencies.
• Liaising with the Debt Management Office, particularly on the state of the gilts market.

In 2008, the Treasury had to come to terms with the largest banking crisis for several decades. Liaising with the Debt Management Office, particularly on the state of the gilts Ministers and officials worked through the night on several occasions to nationalise British banks and to protect the fragile economy. Now that the Treasury has emerged from recession, the department is focusing on rebuilding the UK economy and reforming regulation to reduce the chance of another downturn in the future.

 

Ex. 9 Task1. Read the text about The Financial Services Authority (FSA) and say what are the main functions and responsibilities of the body, dwell upon its main objectives and history of creation.

 

The Financial Services Authority (FSA) is an independent non-governmental body, given statutory powers by the Financial Services and Markets Act 2000.

It regulates the financial services industry in the UK. The FSA receives no government funding – it is funded entirely by the firms it regulates. However, the FSA is accountable to the Treasury and, through them, Parliament.

The history of the FSA began when The Chancellor of the Exchequer announced the reform of financial services regulation in the UK and the creation of a new regulator on 20 May 1997.

The Chancellor announced his decision to merge banking supervision and investment services regulation into the Securities and Investments Board (SIB). The SIB formally changed its name to the Financial Services Authority in October 1997.

The first stage of the reform of financial services regulation was completed in June 1998, when responsibility for banking supervision was transferred to the FSA from the Bank of England. In May 2000 the FSA took over the role of UK Listing Authority from the London Stock Exchange. The Financial Services and Markets Act, which received Royal Assent in June 2000 and was implemented on 1 December 2001, transferred to the FSA the responsibilities of several other organisations:

• Building Societies Commission
• Friendly Societies Commission
• Investment Management Regulatory Organisation
• Personal Investment Authority
• Register of Friendly Societies
• Securities and Futures Authority

In addition, the legislation gives the FSA some new responsibilities – in particular taking action to prevent market abuse.

In October 2004, following a decision by the Treasury, the FSA took on responsibility for mortgage regulation. In January 2005, to implement the Insurance Mediation Directive and in accordance with a Government announcement in 2004 it took on regulation of general insurance business.

In June 2010, the Chancellor announced the government’s intention to replace the FSA as a single financial services regulator with two new successor bodies, and restructure the UK’s financial regulatory framework.
The FSA has been given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives given in The Financial Services and Markets Act 2000 (FSMA). They are:

• market confidence – maintaining confidence in the UK financial system;
• financial stability - contributing to the protection and enhancement of stability of the UK financial system
• consumer protection - securing the appropriate degree of protection for consumers; and
• the reduction of financial crime - reducing the extent to which it is possible for a regulated business to be used for a purpose connected with financial crime.

In meeting these, the FSA is also obliged to have regard to the Principles of Good Regulation.

Task 2. Read the information about the Principles of Good Regulation followed by the FSA and match these principles to the steps the organisation makes/takes to meet them. One choice is not given. Make up your own mind what could be done in this area.

PRINCIPLES OF GOOD REGULATION

In discharging its functions under the Financial Services and Markets Act 2000 (FSMA), the FSA is required to have regard to the following additional matters, which it refers to as 'principles of good regulation'.

Efficiency and economy

The need to use the resources in the most efficient and economic way.

Role of management

The responsibilities of those who manage the affairs of authorised persons.

Proportionality

The burdens or restrictions the FSA imposes on the industry should be proportionate to the benefits that are expected to result from those burdens or restrictions.

Innovation

The desirability of facilitating innovation in connection with regulated activities.

International character

The international character of financial services and markets and the desirability of maintaining the competitive position of the UK.

Competition

The need to minimise the adverse effects on competition that may arise from the FSA’s activities and the desirability of facilitating competition between the firms it regulates.

Public awareness

The desirability of enhancing the understanding and knowledge of members of the public of financial matters (including the UK financial system).

 

 

Actions to be taken

a) A firm’s senior management is responsible for its activities and for ensuring that its business complies with regulatory requirements. This principle is designed to secure an adequate but proportionate level of regulatory intervention by holding senior management responsible for risk management and controls within firms. Accordingly, firms must take reasonable care to make it clear who has what responsibility and to ensure that the affairs of the firm can be adequately monitored and controlled.

b) These two principles cover avoiding unnecessary regulatory barriers to entry or business expansion. Competition and innovation considerations play a key role in our cost-benefit analysis work. Under the Financial Services and Markets Act, the Treasury, the Office of Fair Trading and the Competition Commission all have a role to play in reviewing the impact of the rules and practices on competition.

c) The non-executive committee of the FSA’s board is required, among other things, to oversee its allocation of resources and to report to the Treasury every year. The Treasury is able to commission value-for-money reviews of the FSA’s operations. These are important controls over its efficiency and economy.

d) This involves, for example allowing scope, where appropriate, for different means of compliance so as not to unduly restrict market participants from launching new financial products and services.

e) The FSA takes into account the international aspects of much financial business and the competitive position of the UK. This involves cooperating with overseas regulators, both to agree international standards and to monitor global firms and markets effectively.

f) In making judgements in this area, we take into account the costs to firms and consumers. One of the main techniques the FSA uses is cost-benefit analysis of proposed regulatory requirements. This approach is shown, in particular, in the different regulatory requirements the organisation applies to wholesale and retail markets.