Lesson Summary

Following the global financial crisis, three main regulatory bodies were established in the UK under the Financial Services Act 2012 to oversee different aspects of financial regulation:

• Financial Conduct Authority (FCA)
• Prudential Regulation Authority (PRA)
• Financial Policy Committee (FPC)

Financial Conduct Authority (FCA):

• Responsible for the conduct of business for all financial firms including intermediaries.
• Strategic objective: Ensure relevant markets function well.
• Focus areas:
  • Consumer protection
  • Integrity
  • Competition
• Uses a risk-based approach, targeting operations that threaten its objectives.
• Key outcomes:
  1. Customers receive products that meet their needs from trusted firms.
  2. Markets and financial systems are sound, stable, resilient, and transparent.
  3. Firms compete effectively with customer interests and market integrity paramount.
• Operational focus includes authorization (with PRA), conduct monitoring, product selling standards, complaints management, market analysis, and promoting competition.
• Oversees Supplemental Bodies:
  • Financial Ombudsman Scheme (FOS)
  • Money Advice Service (MAS)
  • Financial Services Compensation Scheme (FSCS)
• Adopts a three-pillar approach:
  1. Ensuring customer interests in firm frameworks.
  2. Handling emerging and ongoing issues.
  3. Possibility to ban products and promotions.

Prudential Regulation Authority (PRA):

• Part of the Bank of England focused on promoting safety and soundness of regulated firms.
• Firms must meet threshold conditions before regulated activities:
  • UK head office
  • Prudent business conduct
  • Appropriate resources
  • Fitness and properness
  • Adequate staffing
• Supervisory framework monitors firm's failure prospects and gross risk exposure including mitigation measures.
• Judgment-based and forward-looking approach.
• Supervises various financial sectors with distinct approaches (e.g., banking vs insurance).
• Dual regulation for insurance companies alongside FCA.
• Focuses on outcomes including:
  • Management and governance
  • Culture and competence
  • Risk management and controls
  • Financial resources
  • Resolvability
• Requires firms to minimize undue risk-taking and behave openly and cooperatively.
• Insurer boards must maintain organizational and operational culture meeting regulatory expectations.

Financial Policy Committee (FPC):

• Identifies emerging and systemic risks in financial markets and the system overall.
• Provides strategic direction to the regulatory environment.