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Who`s who in the finance world?

29 February 2008

Unless you work in the world of finance, financial news can be confusing. Apart from all the technical terms, there are all kinds of bodies doing important things that many people can’t quite follow.

Here, we look at just three of them…

The Financial Services Authority (FSA)
An independent, non-governmental body that regulates the financial services industry in the UK, setting the rules and defining what kind of advice people should receive about pensions, insurance, mortgages, investments, etc. With a few exceptions, it’s illegal to carry out a ‘regulated activity’ without FSA authorisation.

The FSA has the power to make new regulations, investigate suspected problems and fine offenders, in order to:

• maintain confidence in the financial system;
• promote public understanding of the financial system;
• protect consumers; and
• reduce financial crime.

The Office of Fair Trading (OFT)
The OFT is a non-ministerial government department responsible for making markets work well for consumers. It does this by promoting and protecting their interests and making sure that businesses are fair and competitive. So it:

• encourages businesses to self-regulate, so they comply with competition and consumer law and improve their trading practices;
• stops hardcore or flagrant offenders;
• studies markets so it can recommend action that needs to be taken;
• helps people make informed choices and get the best value from markets; and
• helps people resolve problems with suppliers through Consumer Direct.

With some exceptions, any company that offers credit, lends money or provides debt advice must hold a Consumer Credit Licence from the OFT.

The Monetary Policy Committee (MPC) of the Bank of England (BoE)
Founded in 1694, the Bank of England issues banknotes and works to maintain a stable financial and monetary system.

Its Monetary Policy Committee sets the interest rate, which determines the price of money in the UK, helping financial bodies decide how much they’ll charge borrowers and pay savers.

The MPC has to weigh up the pros and cons of changing the interest rate. When the interest rate is:

• Low
  Money is cheaper. People are more likely to borrow and less likely to save. This can boost the prices of assets (e.g. shares and houses) so people have more money to spend. But when spending grows faster than the ‘volume of output’ produced (basically, goods and services), this leads to inflation, which can damage the economy in the long term.
• High
  This has the opposite effect. Money is more expensive. People are more likely to save and less likely to borrow. This keeps inflation low, which can lead to sustainable long-term economic growth.

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