The UK financial system

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DISCUSSION: The UK financial system plays a critical role in different realms including the transfer of resources from depositors to investors. Therefore, its regulation is essential to ensure smooth operations and efficient allocation of resources. Unlike before when the banking sector was heavily deregulated, regulation in the UK has changed significantly, mainly due to frustration with self-regulation and self-regulatory bodies in the 1990s. The inability of self-regulation to prevent the Maxwell pension collapse and the extensive selling of unsuitable pension policies were regarded as staid deficiencies. The labour administration was determined to overhaul and strengthen the system and the Financial Services and Markets Act 2000 (FSMA) was a major step in the regulation of the UK banking sector. Later on, the Banking Act 2009 was established with a view of strengthening regulation of the UK banking sector. There is much need for increased banking regulation. This is because market abuse resulting in financial crime has become a common risk factor in the financial industry. In 2017, 50% increase in investigations opened was reported compared to the previous year. During such a period, the Financial Conduct Authority (FCA) managed six criminal convictions for crimes related to market abuse. Moreover, in 2016 a sponsor company has to part with GBP 530,500 as a result of misrepresentation of a client’s eligibility for a Premium Listing without conducting the obligatory required diligence. Corporate fraud and market abuse are likely to cause bank failure and loss of depositors’ money. There is a need for heightened commitment to protect consumers with much emphasis on the treatment of existing consumers, long-term savings and pensions, high-cost credit as well as intergenerational discrepancies. The FSMA 2000 serves as a source of the statutory framework for the current UK market abuse system. Market abuse is defined in section 118 of FSMA 2000 as “behaviour (whether action or inaction) which is likely to be regarded by a regular user of the market who is aware of the behaviour as a failure on the part of the person or persons concerned to observe the standards of behaviour reasonably expected of a person in his or their position in relation to the market’’. One of the key objectives of FSMA 2000 is to close the regulatory gap through vesting substantial powers to the Financial Services Act (FSA) to enable it to punish unregulated market participants whose actions or inactions do not match up the acceptable standards. Section 47 of FSA regarding market manipulation as a criminal offence has been replaced by section of 397 of FSMA 2000 that renders misleading practices and statements of financial crime. In line with this, the FCA, through use of its powers vested in section 384 of FSMA to have Tesco to compensate investors due to inflating its share price in trading data published in 2014 which was misleading to the public about the value of the company’s shares. In addition, the mayhem experience
in the financial markets since 2007 and the instability constantly experienced in the banking sector has pinpointed the intrinsic systemic risk that the banking sector poses to the UK economy at large. Various w





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