The Financial Services and Markets Act 2000 is the United Kingdom’s principal statute governing financial services. It makes it a criminal offense to carry on a regulated financial activity in the UK without authorization, creates the regulators that grant that authorization and police the industry, and sets up the compensation and complaints systems that protect customers when things go wrong. Most of the day-to-day rules banks, insurers, investment firms, and advisers follow trace their legal authority back to this Act.
The Act has been reshaped since it was passed. The Financial Services Act 2012 replaced the original single regulator with two bodies, and later amendments have moved parts of the market abuse regime into separate legislation. What follows is the Act as it works today.
Who Enforces the Act
Two regulators share the job. The Financial Conduct Authority (FCA) operates under Section 1B and has a strategic objective of ensuring that relevant financial markets function well.1Legislation.gov.uk. Financial Services and Markets Act 2000 – Section 1B Underneath that sit three operational objectives: protecting consumers, protecting and enhancing the integrity of the UK financial system, and promoting effective competition in the interests of consumers.2Legislation.gov.uk. Financial Services and Markets Act 2000 – The FCA’s General Duties The FCA regulates the conduct of every authorized firm and directly supervises those not large enough to pose systemic risk.
The Prudential Regulation Authority (PRA), part of the Bank of England, has a general objective of promoting the safety and soundness of the firms it authorizes.3Legislation.gov.uk. Financial Services and Markets Act 2000 – Section 2B – The PRA’s General Objective Those firms are mainly banks, building societies, credit unions, insurers, and major investment firms. Both regulators can write binding rules, investigate suspected breaches, and impose sanctions.
The General Prohibition
Section 19 of the Act contains its most important single rule: no person may carry on a regulated activity in the United Kingdom unless they are authorized or exempt.4Legislation.gov.uk. Financial Services and Markets Act 2000 – Section 19 This is called the “general prohibition,” and most of what the Act does flows from it.
Breaching the general prohibition is a criminal offense under Section 23. Conviction on indictment can bring up to two years in prison, a fine, or both. Summary conviction carries up to six months in prison or a fine up to the statutory maximum.5Legislation.gov.uk. Financial Services and Markets Act 2000 – Section 23
The civil consequences bite just as hard. Under Section 26, any agreement made by an unauthorized person while carrying on a regulated activity is unenforceable against the customer. The customer can recover any money paid under the agreement and claim compensation for losses suffered. This rule does not apply to deposit-taking.6Legislation.gov.uk. Financial Services and Markets Act 2000 – Enforceability of Agreements
What Counts as a Regulated Activity
The Act does not list every regulated activity itself. It delegates that job to secondary legislation, principally the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, usually called the RAO. Part II of the RAO identifies the specified activities, which include accepting deposits, managing investments, dealing in investments as principal or agent, arranging deals in investments, advising on investments, and operating multilateral trading facilities. Part III lists the specified investments those activities relate to: shares, government and public securities, debt instruments, insurance contracts, units in collective investment schemes, pension products, and derivatives such as options and futures.7Legislation.gov.uk. The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001
Not every transaction that looks financial crosses into regulated territory. The RAO and the FCA’s Perimeter Guidance Manual carve out exclusions. A company issuing its own shares or debentures is not “dealing as principal” for FSMA purposes. An intermediary who arranges a transaction through an authorized person without giving advice or earning a separate fee is generally outside the arranging activity. Simply providing the communication infrastructure through which parties transact, without adding value to the content, does not count as arranging deals either.8Financial Conduct Authority Handbook. PERG 2.8 Exclusions Applicable to Particular Regulated Activities Further exclusions cover risk management by non-financial companies, insolvency practitioners acting as such, and local authorities. These carve-outs matter because the moment an unauthorized party steps across the perimeter, the criminal and civil consequences above start to apply.
Getting Authorized
A firm that wants to carry on a regulated activity legally must apply for a Part 4A permission. Applications go to the PRA when the firm’s activities include PRA-regulated activities (broadly, deposit-taking, insurance, and designated investment business at systemic scale) and to the FCA in every other case.9Legislation.gov.uk. Financial Services and Markets Act 2000 – Part 4A Individuals, companies, partnerships, and unincorporated associations can all apply.
When granting permission the regulator specifies exactly which activities the firm may carry on and can attach limitations. The FCA or PRA may narrow or widen the scope of what was requested, and may even grant permission for an activity the applicant did not ask for if context makes it sensible. A firm that already holds a Part 4A permission cannot apply for a fresh one; it applies to vary its existing permission to add or remove activities.
Rules for Individuals Working in Finance
Authorization of the firm is not the end of it. Section 59 requires that no person perform a “controlled function” at an authorized firm unless personally approved by the relevant regulator.10Legislation.gov.uk. Financial Services and Markets Act 2000 – Section 59 The FCA and PRA each designate controlled functions through their rules. This statutory power underpins the Senior Managers and Certification Regime, which makes individual senior managers personally accountable for the areas of business they oversee. Candidates must pass a “fit and proper” assessment covering honesty, integrity, financial soundness, and competence.
If the FCA or PRA concludes that an individual is not fit and proper, either regulator can make a prohibition order under Section 56. The order can bar the person from performing specified functions, a category of functions, or all functions in the regulated sector.11Legislation.gov.uk. Financial Services and Markets Act 2000 – Section 56 Performing a function in breach of a prohibition order is itself a criminal offense. The regulator that made the order can later vary or revoke it on application, and the FCA and PRA must consult each other where the function is relevant to the other regulator’s responsibilities.
Firms also have an ongoing duty to keep staff competent. The FCA’s Training and Competence sourcebook requires that employees not be assessed as competent to carry on a regulated activity until they have demonstrated the necessary skills and, where applicable, passed the required qualification modules. Until that point they must work under appropriate supervision.12Financial Conduct Authority. Training and Competence Sourcebook (TC)
Promoting Financial Products
Section 21 creates a separate restriction on financial promotions. A person must not, in the course of business, communicate an invitation or inducement to engage in investment activity unless they are authorized or the content has been approved by an authorized person.13Legislation.gov.uk. Financial Services and Markets Act 2000 – Section 21 Breaching this restriction is a criminal offense with penalties comparable to those for breaching the general prohibition.
The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 exempts communications directed at certain recipients. They include high net worth companies with net assets of at least £5 million, trustees of trusts holding £10 million or more in assets, and certified sophisticated investors holding a current certificate from an authorized person confirming they understand the risks of the relevant investment type.14Legislation.gov.uk. The Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 Self-certified sophisticated investors and high net worth individuals can also receive such communications, provided the promotion carries a specific warning that it has not been approved by an authorized person and that the recipient risks losing their entire investment.
Market Abuse and Disclosure
Market abuse used to sit inside the Act itself. Section 118 was repealed in 2016 when the EU Market Abuse Regulation took effect, and after Brexit the UK retained its own version, UK MAR.15Legislation.gov.uk. Financial Services and Markets Act 2000 – Section 118 UK MAR, not FSMA, now prohibits insider dealing, unlawful disclosure of inside information, and market manipulation on the civil side, with the FCA empowered to impose unlimited financial penalties for breaches.
Separate criminal offenses for market misconduct come from Part 7 of the Financial Services Act 2012, covering false or misleading statements and impressions in connection with financial benchmarks, investments, or regulated activities. Convictions on indictment can bring substantial prison sentences and unlimited fines. Listed companies must also promptly disclose inside information that could affect their share price so that all market participants have access to the same material facts.
Protection for Consumers
The Act creates two consumer-facing institutions that most people encounter long before they see any FCA rule.
Part XVI sets up the Financial Ombudsman Service (FOS), which resolves disputes between consumers and financial firms without the cost and formality of court proceedings.16Legislation.gov.uk. Financial Services and Markets Act 2000 – Part XVI From 1 April 2026 the maximum award is £455,000 for complaints about acts or omissions on or after 1 April 2019, and £205,000 for complaints about earlier conduct.17Financial Ombudsman Service. FCA Confirms the Increase to Our Award Limits Where the ombudsman considers fair compensation exceeds the cap, they can recommend (but not compel) the firm to pay the balance. Eligible complainants include individual consumers, micro-enterprises, small businesses, charities with annual income under £6.5 million, and trustees of trusts with net assets below £5 million. Guarantors can complain about matters arising from their role as guarantor. Professional clients and eligible counterparties are generally excluded.18Financial Conduct Authority Handbook. DISP 2.7 Is the Complainant Eligible?
Part XV establishes the Financial Services Compensation Scheme (FSCS), the safety net for customers of a regulated firm that fails and cannot meet its obligations.19Legislation.gov.uk. Financial Services and Markets Act 2000 – Part XV The scheme protects bank and building society deposits up to £120,000 per depositor per PRA-authorized institution, a limit that took effect on 1 December 2025.20Bank of England. PRA Confirms FSCS Deposit Limit to Be Increased to £120,000 From 1 December The FSCS also covers insurance claims and certain investment losses up to separate statutory limits.
If a Regulator Takes Action Against You
Enforcement under FSMA follows a statutory notice procedure. It starts with a warning notice under Section 387, which describes the proposed action, sets out the reasons, and gives the recipient at least 14 days to make representations.21Legislation.gov.uk. Financial Services and Markets Act 2000 – Section 387 If the regulator presses on after considering any response, it issues a decision notice under Section 388. Once that stage closes, a final notice under Section 390 sets out the terms of the action.22Financial Conduct Authority. Decision Procedure and Penalties Manual (DEPP)
A firm or individual who disagrees with a decision notice has 28 days to refer the matter to the Upper Tribunal (Tax and Chancery Chamber), which hears appeals against decisions by the FCA, PRA, Bank of England, and other financial regulators.23Financial Conduct Authority. Enforcement Information Guide The Tribunal conducts a fresh hearing rather than reviewing whether the regulator’s decision was reasonable. Both sides present their evidence and the Tribunal reaches its own conclusion.24GOV.UK. Upper Tribunal (Tax and Chancery Chamber)
A regulator does not always need to reach the enforcement stage to probe a concern. Under Section 166, the FCA or PRA can require a firm to commission an independent report from a “skilled person” on any matter the regulator could request information about. The skilled person must have the necessary expertise, and the firm (along with its service providers) has a legal duty to cooperate fully.25Legislation.gov.uk. Financial Services and Markets Act 2000 – Section 166 The firm typically bears the cost.