2.3.1 The regulators
The aftermath of the financial crisis saw a major overhaul of the regulation of financial services – both in terms of the institutions charged with regulatory responsibilities and in terms of how regulation is applied to business in the sector.
With effect from April 2013 the regulation of the financial services industry was formally passed to the Prudential Regulation Authority (PRA) – a subsidiary of the Bank of England – and the Financial Conduct Authority (FCA).
The PRA’s statutory objective is to promote the safety and soundness of PRA-authorised firms. It aims to achieve this by ‘seeking to avoid adverse effects on financial stability, and in particular seeking to minimise adverse effects resulting from disruption to the continuity of financial services that can be caused by the way firms run their business or upon their failure’ (Bank of England and FSA, 2012, p. 5).
This, however, does not mean ensuring that no financial firm goes out of business: ‘firm failures will happen, but the PRA will seek to ensure that they do not result in significant disruption to the supply of critical financial services, including depositors’ ability to make payments’ (Bank of England and FSA, 2012, p. 5).
While the PRA has inherited the FSA’s detailed prudential policy framework, it is developing this to ensure that it can achieve its core statutory objective.
The FCA has the strategic objective of ensuring that the relevant markets function well. To support this, it has three operational objectives (FCA, 2013):
- to secure an appropriate degree of protection for consumers (the consumer protection objective)
- to protect and enhance the integrity of the UK financial system (the integrity objective)
- to promote effective competition in the interests of consumers (the competition objective).
As with the PRA, the FCA has inherited and is reshaping many aspects of the FSA’s regulatory framework. It is particularly focused on the senior management and board-level involvement in decisions made by financial firms about their products and how these are marketed to their customers – an area of regulation referred to as ‘conduct risk’.