Pt 5. Responsibilities and Approach to Regulation - UK Regulatory Landscape

Question 1

What is the regulatory structure?

Answer 1

• Bank of England - MPC, PRC, FPC
• FCA work alongside FPC - Conduct & Prudential and Conduct Regulation
• PRA work alongside PRC - Prudential regulation

Question 2

What tools does the PRA use for advancing its objectives?

Answer 2

• Regulation - it sets standards or policies that it expects firms to meet.
• Supervision - it assess the risks firms pose to PRA objectives, where necessary takes action to reduce them.

Question 3

What are the 3 characteristics for the PRA’s approach to regulation and supervision?

Answer 3

• Judgement-based approach -
• Outcomes-based approach
• Focused approach

Question 4

What work is the PRA actively involved in?

Answer 4

The work of:

• Financial Stability Board
• Basel Committee on Banking Supervision
• International Association of Insurance supervisors
• Joint Forum

Question 5

What is the FCP?

Answer 5

• FPC is responsible for macro-prudential supervision.
• Seeks to spot systematic risks attributable to structural features of financial markets, or to the distrbution of risk within the financial sector.
• Seeks to identifying unsustainable levels of leverage, debt or credit growth.

Question 6

What macro-prudential tools does the FPC use?

Answer 6

1. Setting countercyclical capital buffers
2. Variable risk weights
3. Leverage limits

Also, FPC has statutory obligation to limit the impact of its policies on economic growth.

Question 7

What are the accountability laws involving FPC?

Answer 7

• Treasury is able to give guidance in form of remit alongside statutory objectives to shape pursuit of financial stability.
• FPC is required to respond to Treasury recommendations, setting out to what extent it agrees with remit and actions intends to take in response.
• FPC may reject any recommendations from Treasury it does not agree with.
• Gov requires FPC to publish Financial Stability Report twice a year.
• Gov requires FPC to publish record of each FPC meeting within 6 weeks.

Question 8

What are the principles of PRC in the assessments of policies?

Answer 8

1. Competition - - minising barriers to entry and ensuring diversity of business models.
2. Growth - Positive contributions to sustainable economic growth in medium-long term.
3. Competitiveness - Ensure UK remains an attractive domicile for internationally active financial institutions, and London retains position as leading financial centre.
4. Innovation - New methods of engaging with consumers in FS, and new ways of raising capital.
5. Trade - Aims to encourage trade and inward investment to UK help to boost productivity and growth across the economy.
6. Better outcome for consumers - Supported by improved compettion in FS, and securing appropriate degree of protection for consumers including policyholders.