Who are the regulators?
The recent scandals and the economic downturn has led to a transformation of the regulation of the financial services industry.
This has created a number of challenges for the industry as well as boosting the need for appropriately skilled professionals to ensure firms are being compliant.
In 2013, the Financial Services Authority was replaced by two separate bodies to help improve the overall regulation of the industry.
As a result of plans by George Osborne, the Financial Conduct Authority (FCA) was created to oversee the activities of the City and the banking system, while the Prudential Regulation Authority (PRA) would police the behaviour of financial firms, such as investment banks and insurance companies.
The changes were agreed in the Financial Services Act in 2012 and came into force on April 1st the following year. The Act also increased the Bank of England responsibility for financial stability and created the central bank’s Financial Policy Committee (FPC).
Under the new system, the FPC is charged with keeping track of the UK economy and focusing on any potential issues that may threaten the long-term growth of the country.
The FCA is funded by the firms that it regulates by charging them fees based on the type and size of businesses. Although it is accountable to the Treasury and Parliament, it does not receive any government funding.
It aims to ensure that the financial services industry operates with integrity, they provide consumers with good quality products and an acceptable level of services that have the best interests of clients at heart.
More than 50,000 businesses are currently regulated by the FCA and they can be subjected to action which can involve a restriction of activity or financial penalties.
The FCA aims to ensure all financial services companies take steps to protect against possible fraud, have systems in place to prevent and detect money laundering and do not act unethically.
The PRA is part of the Bank of England and has two main objectives – to promote responsible financial services firms and ensure insurers give policyholders an appropriate degree of protection.
In order to achieve this, the PRA has two approaches – regulation and supervision. The authority lays out what standards it expects firms to adhere to, while taking action against organisations that do not follow PRA’s objectives.
Major decisions are taken but the PRA’s board, which consists of the governor of the Bank of England, the deputy governor for financial stability, the chief executive officer of the PRA (and deputy governor for prudential regulation).