4.1 The regulatory structure
In Weeks 1 and 2 you saw how the regulation of financial services in the UK was radically reformed after the financial crisis. In this animation, the current structure of the core components of financial regulation in the UK, and the relationship between them, are set out.
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MARTIN UPTON
At the heart of the regulatory structure in the UK are the two main regulatory bodies, the Financial Conduct Authority (or FCA) and the Prudential Regulation Authority (or PRA).
The PRA regulates banks, other deposit takers, investment banks and insurance firms.
The FCA regulates all the other financial firms and has over-arching responsibility for market conduct - including the regulation of product sales. As a result PRA regulated firms are also subject to the FCA's 'conduct' regulation and hence are 'dual-regulated' The PRA is a subsidiary of the Bank of England and reports to the Bank of England.
In addition to its responsibilities for monetary policy the Bank of England, through its Financial Policy Committee (or FPC), has responsibility for monitoring and reducing threats to the financial system to ensure it presents no risks to the wider economy.
This is why the PRA regulates the banks and large insurers since the failure of such firms could lead to systemic failures in the financial system and wider adverse consequences for the economy.
In executing its responsibilities the FPC may make directions and recommendations to the PRA and FCA.
The FCA reports to the UK's HM Treasury and onto Parliament which is ultimately responsible for establishing and monitoring financial services regulation. The Bank of England, which is wholly owned by the UK Government reports to Parliament, principally through the House of Commons Treasury Committee.
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