RBS 2005 Annual Report Download - page 256

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Additional information
The FSA’s statutory objectives are to maintain confidence in,
and to promote public understanding of, the UK financial
system; to secure an appropriate degree of consumer
protection; and to reduce the scope for financial crime. In
achieving these objectives, the FSA must take account of
certain “principles of good regulation” which include
recognising the responsibilities of authorised firms’ own
management, facilitating innovation and competition and
acting proportionately in imposing burdens on the industry.
1.2 Authorised firms in the Group
As at 31 December 2005, 35 companies in the Group,
spanning a range of financial services sectors (banking,
insurance and investment business), are authorised and
regulated to conduct regulated activities by the FSA. These
companies are referred to as ‘authorised firms.’
The FSA supervises the banking business of the UK
based banks in the Group, including the Royal Bank,
NatWest, Coutts & Co, Ulster Bank Limited and Tesco
Personal Finance Limited.
General insurance business is principally undertaken by
companies in the RBS Insurance division, whilst life
assurance business is undertaken by Royal Scottish
Assurance plc and National Westminster Life Assurance
Limited (with the Group’s partner, the AVIVA Group) and
Direct Line Life Insurance Company Limited. Investment
management business is principally undertaken by
companies in the Wealth Management division, including
Adam & Co Investment Management Limited and Coutts &
Co Investment Management Limited, and in the Corporate
Markets division, RBS Asset Management Ltd.
1.3 The FSA’s regulatory approach and supervisory standards
The regulatory regime focuses on the risks to the FSA of
not meeting its statutory objectives and uses the full range
of regulatory tools (including the authorisation of firms,
rule-making, supervision, investigation and enforcement)
available to the FSA. It is founded on a risk based,
integrated approach to regulation.
The FSA can request information from and give directions
to, authorised firms. It may also require authorised firms to
provide independent reports prepared by professionals.
The FSA can exercise indirect control over the holding
companies of authorised firms via its statutory powers to
object to persons who are, or will become, “controllers” of
these firms.
As part of its regulatory approach the FSA carries out regular
risk assessments of the firms in the Group and they are
subject generally to direct and on-going FSA supervision.
Setting standards for firms
The FSA carries out the prudential supervision and
conduct of business regulation of all authorised firms and
also regulates the conduct of their business in the UK.
Currently, the application of its conduct of business rules
to banking business is limited but detailed conduct of
business requirements apply to general insurance
intermediary activities, mortgage businesses and
investment business activities.
Prudential supervision includes monitoring the adequacy of
a firm's management, its financial resources and internal
systems and controls. Firms are required to submit regular
returns to the FSA which provide material for supervisory
assessment. Different prudential requirements have
applied to different sectors of the financial services
industry. However, the FSA has prepared an Integrated
Prudential Sourcebook (“IPSB”) aimed at applying a more
harmonised and consistent approach to prudential
regulation across the whole industry. From 1 January 2005,
insurers were the first industry segment to comply with the
FSA's new IPSB requirements. Implementation for the
remainder of the industry is expected in stages, from
1 January 2005 until 1 January 2008.
Many of the standards relating to the capital which firms
must hold to absorb losses arising from risks to its
business are determined by EU legislation or are
negotiated internationally. The current capital adequacy
regime requires firms to maintain certain levels of capital,
of certain specified types (or tiers), against particular
business risks.
In its supervisory role, the FSA sets requirements relating
to matters such as consolidated supervision, capital
adequacy, liquidity, large exposures, and the adequacy of
accounting procedures and controls. Banks are required to
set out their policy on “large exposures” and to inform the
FSA of this. The policy must be reviewed annually and any
significant departures from policies must be discussed
with the FSA. Large exposures must be monitored and
controlled.
As regards the insurance industry, the FSA’s primary
objective is to regulate and supervise the industry so that
policyholders have confidence that they have bought
appropriate products, and so that UK insurers are able to
meet their liabilities and treat customers fairly. The FSA sets
requirements relating to “margins of solvency” (i.e. the
excess of the value of assets over the amount of liabilities).
Companies carrying out insurance business are required
to submit regular returns covering reserves and solvency to
the FSA.
Additional information continued