10 - Regulatory Authorities in the UK

Question 1

What are the three cores of financial regulation?

Answer 1

To sustain systemic stability: The financial crisis taught us that banking failures can cause global financial meltdowns when banks are allowed to act with poor regulation.

Protect the consumer: Consumers do not have the understanding or access to information on the financial markets as the providers. Therefore it is important that those selling to consumers makes sure the consumer understands the products being sold to them. Because they can be missold, it is important that there is a regulation to protect them.

Safety and soundness of the financial institutions: It is important to maintain the systems for the protection of everyone; the banks, the consumers and the governments from similar events in the past.

Question 2

What is meant by the two types of regulation: Prudential and conduct?

Answer 2

Prudential regulation: The requirement for financial organisations to hold separate funds to cover any possible losses from borrowers defaulting on loans.

Conduct regulation: Business practices, conduct, privacy, honesty and integrity when dealing with customers.