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Chapter 4 The Regulation of Financial Services - Coggle Diagram
Chapter 4
The Regulation of Financial Services
Introduction
Current regulatory system founded on three pieces of legislation
Financial Services and Markets Act 2000
FSMA
Bought all FS sectors under one regulatory system
Financial Services Authority FSA
NOW DISBANDED
Financial Ombudsman Service
(FOS)
Financial Services Compensation Scheme
(FSCS)
Covered
Deposit taking - Banks/Building societies
Investment schemes
Mortgages and loans
Insurance
Regulated activities
Dealing in, arranging, managing, advising on
Also include using computer for giving investment instructions
Financial Services Act 2012
Bank of England and Financial Services Act 2016
A
Financial Services Act 2012
2013
Introduced changes
FSA DISBANDED
Gave Chancellor power to direct BOE where public money at risk and serious threat to financial stability
Regulation now spilt between 3 bodies
Financial Policy Committee (FPC)
Committee within BOE
Watches for emerging risks to whole of financial sector
Provides strategic direction for regulatory system
Prudential Regulation Authority (PRA)
PART OF BOE
Responsible for STABILITY AND RESOLVABILTY of large/important institutions - Banks, building societies, insurers
Seeks to ensure firms failing don't bring system down
Judgement based approach to supervision
Financial Conduct Authority (FCA)
SEPARATE AND INDEPENDENT REGULATOR
Responsible for
COB and Market issues for all firms
Prudential regulation of smaller firms
Focused on early action
Uses thematic reviews and analysis to identify potential problems areas e.g financial incentives
Can ban products
A1
Bank of England and Financial Services Act 2016
Modified FSA 2012
Put BOE at heart of financiall stability
PRA became part of BOE
Prudential Regulation Committee PRC established
Operates alongside FPC and MPC
Governance of PRA
B
UK Financial Authorities
Intro
HM Treasury, BOE
(incorporating
PRA
and
FPC
) and
FCA
are the UK financial authorities
MOU established framework for cooperation between the three authorities
Standing Committee on Financial Stability
meets monthly to coordinate
Smooth, efficient, effective running of sector
Chaired by HM Treasury
HM Treasury
Gives effect to HMG financial/economic policy
OVERALL AIM
Raise the rate of sustainable growth
&
Achieve rising Prosperity
by
Creating economic and employment opportunities
Bank of England
UK Central Bank
Responsible for
Settling of Payments
Functioning of Markets
Providing routine and emergency liquidity
to banking system
TWO CORE PURPOSES
Monetary Stability
Maintains STABLE PRICES defined by HMG INFLATION TARGET
MPC sets INTEREST RATE to
meet target
Financial Stability
Detecting and Reducing threats using surveillance/intelligence functions
and then
Strengthen infrastructure
Act as lender of last resort
Financial Policy Committee (FPC)
Primary Objective
Identifying and dealing with SYSTEMIC RISK to IMPROVE RESILIENCE
Secondary Objective
Support the economic policy of HMG
Prudential Regulation Authority PRA
Responsible for prudential regulation and supervision of
Banks
Building Societies
Credit Unions
Insurers
Major Investment Firms
i.e. bigger institutions
Primary Objective
- Safety and Soundness
i.e. enough money
Objective to ensure
Insurers
provide appropriate degree of protection
Secondary Objective
Facilitate competition
Forward looking &
focuses on firms that pose risk
Dual regulates larger firms with FCA
Prudential Regulation Committee PRC
Introduced by BOE and Financial Services Act 2016
PRC has governance of PRA
On same footing as MPC and FPC
Chaired by Governor of BOE
Financial Conduct Authority FCA
Responsible for
FOS
FSCS
Claims management companies (CMC's)
Money Advice and Pensions Service
Overarching Strategic Objective
Ensure Financial Markets Work Well
3 Operational Objectives
C
onsumer Protection
I
ntegrity of UK Fin System
C
ompetition
8 Regulatory Principles
Efficiency and Economy
Proportionality
Sustainable Growth
Consumer Responsibility
Senior Mgt Responsibility
Recognising diversity of those regulated
Openness & Disclosure
Transparency
C
Role of the EU
D
Other Regulators
E
Additional Oversight