topic 17 - the fcas aims and activities

Question 1

The financial crisis of 2007-09

Answer 1

• caused by a failure of prudential regulation
• In years following there have been a no. of issues related to the conduct of firms – mis-selling of payment protection, the Libor rate-fixing scandal and the sale of interest rate hedging products to corporates
• Resulted in the Financial Services Act 2012 – saw the creation of a no. of new regulatory bodies and the abolition of the FSA

Question 2

The Financial Policy Committee (FRC)

Answer 2

• A committee of the Bank of England
• Looks at the economy in broad terms to identify and address risks that may threaten the stability of the whole economy
• No direct regulatory responsibility for firms

Question 3

The Prudential Regulation Authority (PRA)

Answer 3

• Has sole responsibility for the day-to-day prudential supervision of banks and other financial institutions
• Sits within the Bank of England but is operationally independent
• Authorises large, systematically important providers of financial services

Question 4

The Prudential Regulation Committee (PRC)

Answer 4

• Exercise the powers of the PRA
• Primary objective is to promote the safety and soundness of the firms it regulates

Question 5

The Financial Conduct Authority (FCA)

Answer 5

• Has responsibility for the conduct of all retail and wholesale financial firms
• Also undertakes prudential supervision of firms that are not regulated by the PRA
• Is a quasi-government department with statutory powers given under the Banking Act 1987, the Financial Services and Markets Acts 2000 and 2023, and the Financial Services Act 2012 (which created the FCA)

Question 6

The role of the FCA

Answer 6

• An independent financial regulator that reports to the Treasury and Parliament
• Both the FCA and PRA oversea the regulation of financial services in the UK
• FCA is responsible for conduct regulation of all firms
• Some firms are regulated solely by the FCA, in relation to prudential and conduct matters

Question 7

Operational objectives of the FCA

Answer 7

• To protect consumers from bad conduct
• To protect financial markets
• To promote effective competition

Question 8

Powers of the FCA

Answer 8

• The PRA and FCA are jointly responsible for the Financial Services Compensation Scheme (FSCS)
• The FCA is responsible for the Financial Ombudsman Service (FOS)
• Competition pos
• Product intervention powers
• Power of disclosure – warning notices or disciplinary action
• Power to take formal action – regarding misleading financial promotions

Question 9

prudential regulation

Answer 9

Prudential regulation aims to ensure that businesses are established
and run on a sound financial basis, to limit the risk of a business failing and to minimise the impact on consumers and the wider economy if a business does fail

Question 10

systemically important

Answer 10

refers to financial institutions that play a key role in the national and global economy. If they were to fail, it would have a significant adverse impact on the national or global financial system