Financial Services Act 1986

Financial Services Act 1986
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Short title	Financial Services Act 1986
Long title	An Act to provide for the giving of financial services by persons carrying on certain activities, for the regulation of those activities and for connected purposes
Citation	1986 c. 60
Territorial extent	United Kingdom
Royal assent	1986
Status	Repealed/Amended (subsequently superseded)

Financial Services Act 1986 The Financial Services Act 1986 was primary legislation enacted by the Parliament of the United Kingdom under the Margaret Thatcher ministry to regulate aspects of the City of London financial markets and to reform the regulatory regime after market liberalisation measures such as the Big Bang (financial markets); it established statutory powers affecting firms trading in London Stock Exchange securities, Unit Trust managers and other market participants. The Act created a framework for prudential and conduct supervision influenced by precedents from the Bank of England, the Bank of England Act 1946 era debates and international standards promoted by bodies including the Basel Committee on Banking Supervision and the International Organization of Securities Commissions. The legislation laid groundwork later modified by statutes including the Financial Services and Markets Act 2000 and the Financial Services Act 2012.

Background and Legislative Context

The Act was drafted in the aftermath of deregulatory episodes such as the Big Bang (financial markets) and in response to scandals involving intermediaries, prompting intervention by ministers including Nigel Lawson and advisers linked to the Treasury (HM Treasury), with policy influenced by reports from the Cramer Committee and debates in the House of Commons and House of Lords. Parliamentary scrutiny referenced comparative models from the Securities and Exchange Commission and the Commodity Futures Trading Commission, and addressed issues raised in inquiries such as the Cadbury Report and the Turner Report. Economic conditions shaped by interactions between International Monetary Fund guidance, European Economic Community directives and the World Bank also informed legislative choices.

Key Provisions and Regulatory Framework

The statute introduced authorisation requirements for firms carrying on investment business, standards for disclosure applicable to merchant banks and brokers, and statutory duties for self-regulatory organisations akin to the Council of Mortgage Lenders and Building Societies Association; it also created offences for market abuse that involved coordination with criminal law institutions such as the Crown Prosecution Service. The Act set out powers for inspection, sanction and remedial directions reflecting administrative law principles discussed in cases before the House of Lords and later the Supreme Court of the United Kingdom. Provisions interfaced with European instruments such as the Investment Services Directive and supranational arrangements embodied by the European Commission.

Institutional Structure and Authority (SIB/FCA predecessor bodies)

A central feature was the formal recognition and statutory footing for self-regulatory organisations including the London Stock Exchange and the Takeover Panel, and the creation of the Securities and Investments Board as an oversight body drawing staff from entities like the Bank of England and recruiting from firms represented on the Association of British Insurers and the British Bankers' Association. The Securities and Investments Board exercised supervisory functions reminiscent of later regulators such as the Financial Services Authority and the Financial Conduct Authority, coordinating with supervisory counterparts like the Prudential Regulation Authority model and liaising with overseas regulators including the Securities and Exchange Commission and the Office of the Comptroller of the Currency.

Implementation and Enforcement

Implementation required rule-making by the Securities and Investments Board, enforcement action by recognised bodies such as the Institute of Chartered Accountants in England and Wales and disciplinary proceedings that referenced civil and criminal standards as interpreted by the Court of Appeal (England and Wales) and the High Court of Justice. Enforcement examples involved investigations touching firms linked to names appearing before inquiries chaired by figures such as Sir David Walker and judicial review claims brought in courts influenced by precedents like Council of Civil Service Unions v Minister for the Civil Service and decisions arising from regulatory appeals to the Privy Council.

Impact on UK Financial Markets and Industry

The Act influenced market structure in the City of London by altering firm behaviour among investment banks, stockbrokers, insurance companies and asset managers, contributing to consolidation trends involving institutions such as Barclays, HSBC, Lloyds Banking Group and Barclays Capital. It informed corporate governance practices discussed alongside the Cadbury Report and affected cross-border activity involving Euromarkets and offshore financial centres such as Jersey and Guernsey. Market participants adjusted to compliance obligations, leading to the creation of professional services offerings from firms like Deloitte, PricewaterhouseCoopers, KPMG and Ernst & Young.

Amendments, Criticisms and Legal Challenges

The Act was amended by subsequent statutory instruments and reformed in part by the Financial Services and Markets Act 2000, which replaced many functions and led to debate involving ministers including Gordon Brown and regulators like Adair Turner. Criticisms arose from academics associated with London School of Economics, practitioners from the Institute of Chartered Accountants in England and Wales, and commentators in outlets such as the Financial Times, arguing about fragmentation, enforcement effectiveness and regulatory capture mirrored in controversies over firms like Barings Bank and incidents prompting inquiries such as the Turner Review. Legal challenges engaged courts including the House of Lords and produced jurisprudence shaping administrative law and regulatory discretion, later influencing reforms under the Banking Act 2009 and the Financial Services Act 2012.

Category:United Kingdom Acts of Parliament 1986