- Historically, a lack of regulation of financial activities has led to risky loans, poor investments, and banking losses
- In response, the Bank of England has increased its supervision and regulation of financial institutions to provide financial stability and a degree of protection for depositors and borrowers
- The following regulatory bodies were set up to oversee the financial system in the UK:
- The Prudential Regulation Authority (PRA)
- The Financial Policy Committee (FPC)
- The Financial Conduct Authority (FCA)
Role of Regulatory Bodies in the UK
Regulatory body |
Explanation |
The Prudential Regulation Authority (PRA)
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- The PRA creates regulations for banks, insurers and co-operative institutions. It also helps to avoid insolvency of bank
- They achieve this by monitoring adherence to rules and regulations
- E.g The PRA worked with the Royal Bank of Scotland after the 2008 economic crash. To reduce effects from risky loans and poor investments, they advised them to sell parts of the bank, cut costs, and manage risks
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The Financial Policy Committee (FPC)
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- The FPC was established after the 2008 recession to create financial stability
- They aim to identify, track, and address risks to the financial system in the UK
- To do this, they created a stress test for banks to help them withstand future economic shocks. This requires banks to be able to cover potential losses using a capital buffer
- Tighter regulations on the amount individuals were able to borrow were set based on incomes. This avoids excessive lending and aims to prevent another housing bubble
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The Financial Conduct Authority (FCA)
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- The FCA regulates financial services firms and financial markets in the UK. This ensures that they are operating fairly and in the best interest of consumers
- E.g, In 2023, the FCA reviewed NatWest Group after potential data protection breaches and their management of account closures
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