Pros/cons of the regulatory structure (feedback)

The diagram depicts the new structure for financial services regulation that took effect from 2013. The figure indicates the lines of accountability between the various bodies that comprise the regulatory structure. At the top of the diagram is Parliament, which has responsibility for the legislative framework for regulation. Below, and with accountability to, Parliament are the Chancellor of the Exchequer and the Treasury. These have responsibilities for the regulatory environment and for the use of public funds used to support regulation. Below them comes the Bank of England with its responsibilities for financial stability and, through its Financial Policy Committee (FPC), for the monitoring and managing of systemic risks within the financial system. Below the Bank of England come the two regulatory bodies that have superseded the Financial Services Authority (FSA): the Prudential Regulatory Authority (PRA) which is a subsidiary of the Bank of England, and has responsibility for the supervision of financial firms and the Financial Conduct Authority (FCA) which regulates markets and protects the interest of consumers of financial products.Roles and accountabilities in the new regulatory system. (Click to expand)

Source: HM Treasury (2011) A new approach to financial regulation: the blueprint for reform, June 2011, permitted under the terms of the Open Government Licence. © Crown Copyright 2011. doc/ open-government-licence/p. 8

Time will tell if the new regulatory structure is too ‘engineered’. Certainly the splitting of responsibilities could lead to problems – although the FCA and PRA have set out plans about how they will communicate and work with each other in Memorandums of Understanding.

It does seem a little odd to have unified regulation under the FSA in 2001, only then to divide up regulation again 12 years later.

Concerns have been raised within firms about the regulatory overload and the associated cost of regulation, with some fearing that the need to focus on regulation diverts management from spending time on the core business activities.

However, experience of the new regulatory approach supports the view that it is much more forensic and robust than that applied by the FSA.

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Finance Fundamentals: Financial Services after the Banking Crisis

The Open University