Financial Regulation

This involves an increased emphasis on prudential regulation. This essentially means that regulators are put in place to maintain the stability of a financial system.

Since the global financial crisis, regulators have placed increased emphasis on prudential regulation — i.e. putting in place safeguards for the stability of the financial system. This occurs on the micro and macro level: Micro — Regulation of individual firms including banks, lenders and insurance companies. Macro — Safeguard the financial system as a whole.

Regulation is vital in ensuring a minimised impact of financial crashes and can help to prevent them. Banks have to be regulated especially in the UK. The Bank of England has 3 financial regulatory sectors including the: the Financial Policy Committee, the Financial Conduct Authority (FCA) and the UK Prudential Regulation Authority.

Financial Policy Committee:

Created to identify, monitor and take action in removing or reducing risks threatening the stability of UK financial system on a macro level. They publish a Financial Stability Report which establishes the main threats. They also determine which risks are growing and advice banks and lenders to increase buffers to absorb losses. They instruct commercial banks to alter capital buffers (a mandatory capital that financial institutions are required to hold in addition to other minimum capital requirements).

Financial Conduct Authority:

Created in April 2013, the Financial Conduct Authority has 3 main aims: (1) Securing protection for consumers. (2) Protecting and enhancing the integrity of the UK financial system. (3) Promoting effective competition for consumers.

UK Prudential Regulation Authority:

Controls the prudential regulation in the UK by supervising 1,700 banks, building societies, credit unions, insurers and major investment firms.They focus on specific markets including: Insurance providers, Mortgages and Credit Unions.