Prior to the Financial Services Act (1986) the conduct of business was subject to various controls. Insurance activities were controlled to some extent by insurance companies regulations and codes of practice adhered to by members of trade associations. The Prevention of Fraud (Investments) Act (1958) controlled dealings in securities. These controls had become inadequate over the years and some investors had lost money as a result.

In response to this situation, it was considered that new systems were needed to regulate investment business. In 1981, the then Secretary of State for Trade appointed Professor Gower to undertake a review of investor protection and advise on the need for new legislation . Professor Gower's final report published in 1984, constituted the basis for the Government's subsequent proposals which culminated in the Financial Services Act (1986).

The Act provides the overall framework of legislation for investor protection. The system that has been adopted is one of self-regulation supervision by a government regulator. The crux of the Act is contained in Section 3, which requires that any person carrying on investment business in the UK be authorised, unless he or she is exempt from this requirement. Contravention of Section 3 is a criminal offence.