Officer on Deck
![james-rundle james-rundle](/sites/default/files/styles/landscape_750_463/public/import/IMG/765/194765/james-rundle-580x358.jpg.webp?itok=KSqZWuPJ)
Alas, Financial Services Authority, we barely knew thee. Despite a period of relative empowerment of late, the UK's primary regulator was dissolved with the stroke of midnight on March 31, giving way to three new bodies which will have oversight of the country's financial system.
These are the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA) and the Financial Policy Committee (FPC), all controlled in part by the Bank of England, which is now probably the most powerful central bank in the world, given its new authority and remit. The FSA had previously come under sustained fire for being asleep at the wheel during the run up to, and eventual near-collapse of the banking system, as well as for perceived failures over retail-focused issues such as the misspelling of Payment Protection Insurance on consumer loans, and other areas. George Osborne, the Chancellor of the Exchequer in the UK, had promised to get rid of the FSA and the so-called ‘tripartite' regulatory structure, a legacy of the previous Labour government. The new institutions will be quasi-governmental in nature as part of the Bank of England, which is independent, rather than being direct arms of the government.
Who Does What Where?
Broadly speaking, wholesale investment firms will be overseen by both the FCA and the PRA, but both will have different remits. A number of familiar faces from the FSA will be there, too, and both institutions will continue to share systems, premises and technology as well as other areas. Despite a PR offensive from the respective heads of the two bodies, however, some confusion still remains over exactly what will be the areas of responsibility among segments of the financial industry.
"One key change in the regulatory spilt is the new focus on conduct risk," says Paul Willis, associate director at financial services consultancy Navigant. "Conduct risk is the known unknown of the new regulatory environment─we're sure it's coming but it's unclear what impact it might have. The FCA wants conduct risk to be baked into the new regulatory environment and firms' business models, but uncertainty still exists as to what conduct risk management is actually going to involve."
The FCA, essentially, will be responsible for macro-regulatory efforts. Chief among these will be the monitoring of the resilience in the UK financial system, supporting government economic policy and identifying systemic risk elements. The FCA will take the role of supervision for FSA-registered firms.
For its part, the PRA is the micro-prudential regulatory authority, tasked with ensuring the safety and soundness of financial institutions. The FPC will have the power to direct both the FCA and the PRA in macro-prudential matters, and is responsible for the general oversight of system resilience as well as the identification and removal of potential systemic risks.
A new tripartite structure in a way, then, underpinned by a bolstered Bank of England. At least, until the next UK government comes along.
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