What has happened since 2008?
Since the global financial crisis of 2007/08, a number of significant changes have been made to the UK’s regulatory regime. In particular, two new regulatory authorities replaced the former regulator, the Financial Services Authority (FSA).
The Prudential Regulation Authority (PRA) is part of the Bank of England and is responsible for the prudential regulation and supervision of around 1,700 banks, building societies, credit unions, insurers and major investment firms. The PRA’s objectives are set out in the Financial Services and Markets Act 2000 (FSMA). The PRA has three statutory objectives:
- a general objective to promote the safety and soundness of the firms it regulates;
- an objective specific to insurance firms, to contribute to the securing of an appropriate degree of protection for those who are or may become insurance policyholders; and
- a secondary objective to facilitate effective competition.
The biggest financial institutions are now subject to an annual ‘stress test’. This year, they will be assessed on whether they can withstand a Chinese property crash, recession and deflation in the eurozone, high levels of market volatility and low oil prices7.
The second regulatory authority, the Financial Conduct Authority (FCA), aims to make sure that financial markets work well so that consumers get a fair deal. This means ensuring that:
- the financial industry is run with integrity
- firms provide consumers with appropriate products and services
- consumers can trust that firms have their best interests at heart.
Meanwhile, the UK’s major banks have made huge strides in rationalising their business models, while new liquidity requirements have been introduced under a set of international banking regulations known as the Basel Accords8. These are designed to strengthen global capital and liquidity rules with the goal of promoting a more resilient banking sector.