The UK Regulatory Structure Flashcards
What are the five main bodies of the UK regulatory structure?
- Financial conduct authority - FCA
- Prudential regulation authority - PRA
- Bank of England - BoE
- Financial policy committee - FPC
- HM treasury
The FSA 2012 amended FSMA 2000 to reform the UK financial services regulator structure. Created the current regulatory framework in 2013 by:
- Established a macro-prudential regulator, the FPC within the BoE to monitor and respond to systemic risks
- Transferred responsibility for prudential regulation of banks, insurers and firms to the PRA. (Bought within BoE)
- Establishment of the PRC (Prudential regulation committee) in the BoE as the governing body of the PRA
- Created a focused conduct of business regulator, the FCA to regulate both retail and wholesale markets and promoted consumer protection.
What is the FCA?
List its strategic objective and the three operational objectives.
FCA - Financial Conduct Authority
CONDUCT OF BUSINESS REGULATOR
- Strategic - ensuring that the relevant markets function well.
- Operational
A. Secure and appropriate degree of protection for consumers.
B. Protect and enhance the integrity of the UK financial system.
C. Ensure businesses compete fairly so that consumers get better choices, prices, and services. It applies to financial services and recognised investment exchanges (RIEs - where people trade investments). Protect consumers by ensuring companies don’t take unfair advantage and that the market stays open and competitive.
What is the scope of FCA’s activities?
- Conduct of business regulation for all firms in both retail and wholesale markets, including PRA-authorised firms.
- Acting as the lead regulator for firms other than PRA-authorised firms (these are FCA-authorised firms)
- Market regulation. (Except the responsibilities for settlement systems and clearing houses)
Note: institutions providing exchange and clearing services are regulated by BoE - Regulatory oversight of client assets and countering financial crime as well as institutions operating outside the FSMA perimeter (like e-money firms)
Explain the regulatory structure and where each committee or authority sits
- BoE - has PRC and FPC
- Then, we go to the PRA (responsibilities defined by PRA) and FCA (responsibilities defined by FPC)
Refer to Page 91 in the textbook
What is a responsibility of the Bank of England?
- Protect protecting and enhancing the stability of financial system in the UK.
- Work with other relevant bodies like the HM treasury, PRA and the FCA.
- The bank has a Special Resolution Unit responsible for resolving failing banks using the special resolution regime
- Has two bodies within it: the PRC and the FPC.
What is the difference between the responsibilities of the PRA and the FCA?
- PRA is responsible for prudential supervision of banks, insurers and large investment firms. (Ensuring the institutions are financially strong and stable)
- FCA is responsible for their conduct regulation. (How they behave)
The Financial Services Act 2012 gives the HM treasury and PRA a special power.
What are these powers?
- HM Treasury - Place the boundary between the PRA and the FCA (can define which firms are regulated by which authority)
- PRA - require the FCA not to take a specific action in closely defined circumstances
From April 2014, the FCA to cover some activities from the Office of Fair Trading.
What are these activities?
- Lending or brokering credit, whether or not secured on land.
- Being a credit reference agency or providing credit information services.
- Debt collection and debt administration services.
- Carrying out activities in relation to contracts for the hire of goods.
How does the FCA deal with the conduct of firms with regards to consumer protection?
- Has a proactive approach.
- Has powers to intervene and impose requirements or even ban products.
- Has the ability to disclose the commencement of formal enforcement action against a firm. (officially announce when they start taking legal/ regulatory action against a company for breaking rules)
- Can remove promotions immediately from the market or prevent them from being used in the first place.
Briefly explain what the PRA is. What are its objectives and its responsibilities?
- Legal entity within the BoE
- Prudential regulator for large firms like banks, insurers, larger and more complex investment firms
- Core objective: ensure safety and soundness of the firms regulates.
- Supervises and regulates firms in relation to their resilience and is also responsible for their orderly resolution (for failed firms)
- Takes a judgement-led approach to supervision.
- Type and level of supervision is determined by the risk posed to the firm.
Briefly explain what the FPC is. What are its objectives and its responsibilities?
- Situated within the BoE.
- Monitors the financial system as a whole and identify risks to stability.
- Can make recommendations and offer advice to the PRA and the FCA.
- Can also intervene to ensure appropriate action is taken to ensure stability where needed.
- Made up of:
A. A governor (chair) and three deputy governors
B. two BoE executive directors
C. chief executive of the FCA
D. Four external members.
E. Non-voting treasury representative - Publishes two financial stability reports each year and a record of its meetings.
What is the difference between the responsibilities of the PRA and the FCA?
- PRA is responsible for prudential supervision of banks, insurers and large investment firms. (Ensuring the institutions are financially strong and stable)
- FCA is responsible for their conduct regulation.
The Financial Services Act 2012 gives the HM treasury and PRA a special power.
What are these powers?
- HM Treasury - Place the boundary between the PRA and the FCA
- PRA - require the FCA not to take a specific action in closely defined circumstances
