Blog - 11/06/2013
Where’d the FSA go?
Since 2001, the Financial Services and Markets Act has conferred the role for regulation of the majority of the UK’s financial services (FS) system to the Financial Services Authority (FSA). However, as a result of the global financial crisis, it was determined that a more robust approach to UK FS regulation was essential.
Therefore, major reforms were introduced by the Financial Services Act 2012 (which came into effect on 1 April 2013), the main goal being the establishment of a regulatory framework that would deliver financial stability.
To meet this goal, three entities have been created. A new and independent part of the Bank of England, the Financial Policy Committee (FPC) is tasked with the macro-prudential regulation. Its functions include removing or reducing systematic risks so as to ensure the stability of the financial system as a whole, providing direction to the other two entitles (discussed below), supporting the Government’s economic policy and developing financial stability reports.
The second entity is the operationally independent subsidiary of the Bank of England, the Prudential Regulation Authority (PRA). The PRA is responsible for micro-prudential regulation: it ensures the safety and soundness of banks, building societies, credit unions, and insurance providers (PRA-authorised individuals). The PRA accomplishes this task by authorising these organisations and approving individuals within the firms who undertake PRA functions. Compared with the pre 1 April structure, the PRA replaces the FSA as the regulatory authority for PRA-authorised individuals.
The final branch in the UK’s new FS regulatory tree is the Financial Conduct Authority (FCA). Rather than being a like-for-like replacement of the FSA, the FCA and PRA together now form the “twin peaks” of FS regulation. An independent institution, the FCA promotes market integrity, consumer protection and effective competition. It is also responsible for the conduct of business rules for all authorised individuals. Any firm or person undertaking a regulated FS activity which is not a PRA-authorised individual must be authorised by the FCA.
In summary, whereas previously the FSA was the one-stop for UK FS regulation, the Financial Services Act has introduced a three-branch structure, segregating the micro-regulation between the PRA and the FCA, both of which are guided by the FPC.
If you would like any further information about this, please contact Brenna Baye by emailing email@example.com.
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