Regulatory Reform of the UK Financial Services Industry
For many years the principal regulator for the UK financial services industry has been the Financial Services Authority (FSA). As a result of the FSA's perceived failings during the financial crisis and subsequent recession, the FSA was this week abolished in its current form and replaced by:
- the Prudential Regulation Authority (PRA), which sits as an independent subsidiary of the Bank of England and is responsible for the regulation of financial institutions of systemic importance such as banks and building societies;
- the Financial Conduct Authority (FCA), which has inherited most of the regulatory roles previously carried out by the FSA including responsibility for the conduct of all businesses which were regulated by the FSA; and
- the Financial Policy Committee (FPC), which sits in the Bank of England and will oversee macro-economic risks as well as giving recommendations to the PRA and FCA.
Responsibility for the micro-prudential regulation of banks, insurers and major investment firms has passed from the FSA to the PRA. These types of institutions are now effectively subject to dual regulation as their conduct will be regulated by the FCA.
The FSA has effectively been renamed and rebranded as the FCA with the following three areas of responsibility:
- conduct of business supervision of banks, insurers and major investment firms (as mentioned above, these institutions will also be subject to prudential regulation by the PRA);
- conduct of business and market supervision of all regulated firms not falling within the remit of the PRA; and
- enforcement (although the PRA has the same powers as the FCA to impose penalties and fines for regulatory breaches).
Whilst the PRA is responsible for micro-prudential regulation of systemically-important institutions, the FPC has responsibility for macro-prudential regulation i.e. the monitoring and safeguarding of stability of the UK financial system as a whole. Whilst the FPC does not have direct enforcement powers over institutions, it has the power to direct the PRA and the FCA to take action against an institution where the FPC believes that this is necessary to safeguard the UK's financial stability.
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