Finanial markets - regulation

Question 1

when is regulation needed

Answer 1

if the public interest is being harmed/at risk

Question 2

Bank of england regulatory bodies

Answer 2

• Financial policy committee (FPC)
• Prudential Regulation Authority(PRA)

Question 3

summarise the Financial Policy committee

Answer 3

• set up after financial crisis to prevent systemic risk
• they are macro credential regulators, their job is to monitor/regulate the whole financial sector
• identify , monitor and protect against systemic risk
• they instruct the PRA and the FCA in tackling financial stability issues
• they advise the government

Question 4

summarise the Financial Policy committee

Answer 4

• set up after financial crisis to prevent systemic risk
• they are macro prudential regulators, their job is to monitor/regulate the whole financial sector
• identify , monitor and protect against systemic risk
• they instruct the PRA and the FCA in tackling financial stability issues
• they advise the government
• carry out stress tests
• have the power to provide emergency liquidity, through the liquidity insurance scheme to protect against systemic risk if there is a liquidity crisis

Question 5

what is a stress test

Answer 5

tests whether banks in the UK are able to deal with a worst case financial scenario

Question 6

summarise the PRA

Answer 6

• micro prudential regulators, meaning their regulation is more targeted
• job is to maintain the stability of banks within the UK financial sector
• supervise the management of risk
• setting industry standards for conduct and management with enforcement
• specify ratios/reserve requirements

Question 7

what is the FCA (the financial conduct authority)

Answer 7

a financial regulatory body who report to the treasury and not the BofE, govt run organisation
- they are micro prudential regulators

Question 8

role of FCA financial conduct authority

Answer 8

• to protect consumers and increase confidence in financial institutions/products
  they do this by:
• supervising conduct of firms/markets to ensure legal business activities (no market rigging)
• promoting competition so consumers get better deals - deregulation
• banning financial products that are against the interests of consumers
• banning it changing misleading adverts for financial products

Question 9

type of financial market regulations and the intentions of those regulations

Answer 9

• banning market rigging with strong enforcement, so there is less collusion which harms businesses and other financial institutions
• preventing sales of unsuitable products to consumers - protects consumers from products with excessive risk, charges and limited benefits
• maximum interest rates - prevents consumer exploitation whilst preventing excessively risky lending
• deregulation - increases competition
• deposit insurance - protects consumer deposits in case of bank run
• keeping commercial and investment banking separate, this lowers systemic risk
• setting limits on bank lending. this reduces the chance of bank failure and systemic risk
• liquidity insurance with conditions and punishments