Financial Authorities

HM Treasury

HM Treasury is the department responsible for formulating and putting into effect the UK Government’s financial and economic policy. HM Treasury’s overall aim is to raise the rate of sustainable growth and achieve rising prosperity by creating economic and employment opportunities for all. Financial instability would adversely affect this aim.

The Treasury chairs the UK Standing Committee on Financial Stability, but it does not have operational responsibility for the FCA or the Bank of England. Work on financial contingencies raises issues of relevance to the Treasury that include:

  • the economic disruption that would arise from financial instability;
  • in the rare circumstances where conceivable — the cost, risk and benefit of a financial support operation involving provision of public capital or liquidity (sometimes termed a ‘lender of last resort’ operation);
  • consideration of whether change in the law or institutional structures may be appropriate;
  • links with wider Government policy.

In particular, the Treasury ensures that the financial authorities’ work links with the Government’s wider framework for building resilience and dealing with contingencies.

Bank of England

The Bank of England is the UK’s central bank. The Bank was founded in 1694, nationalised in 1946, and gained operational independence in 1997. Standing at the centre of the UK’s financial system, the Bank is committed to promoting and maintaining a stable and efficient monetary and financial framework as its contribution to a healthy economy.

Bank of England

In the area of continuity planning, the Bank has responsibility for the:

  • settling of payments;
  • functioning of UK markets;
  • provision of routine and emergency liquidity to the banking system.

The Bank of England has two core purposes:

Core purpose 1 — Monetary stability.

Monetary stability means stable prices and confidence in the currency. Stable prices are defined by the Government’s inflation target, which the Bank seeks to meet through the decisions on interest rates taken monthly by the Monetary Policy Committee, explaining those decisions transparently and implementing them effectively in the money markets.

Core purpose 2 — Financial stability.

Financial stability entails detecting and reducing threats to the financial system as a whole. Such threats are detected through the Bank’s surveillance and market intelligence functions. They are reduced by strengthening infrastructure and financial and other operations at home and abroad, including, in exceptional circumstances, by acting as the lender of last resort.

Financial Policy Committee

On 1 April 2013 an independent Financial Policy Committee (FPC) was established at the Bank of England. The FPC is charged with a primary objective of identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system. The FPC has a secondary objective to support the economic policy of the Government.

The FPC publishes a record of its formal policy meetings, and is responsible for the Bank’s bi-annual Financial Stability Report.

Prudential Regulation Authority

The Prudential Regulation Authority (PRA) is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. In total the PRA regulates around 1,700 financial firms.

The PRA has a primary objective:

to promote the safety and soundness of these firms and, specifically for insurers, an objective to contribute to the securing of an appropriate degree of protection for policyholders.

In promoting safety and soundness, the PRA focuses primarily on the harm that firms can cause to the stability of the UK financial system. A stable financial system is one in which firms continue to provide critical financial services a pre-condition for a healthy and successful economy.

The PRA will make forward-looking judgments on the risks posed by firms to its statutory objectives. Those institutions and issues which pose the greatest risk to the stability of the financial system will be the focus of its work.

The PRA has close working relationships with other parts of the Bank of England, including the FPC and the Special Resolution Unit.

Financial Conduct Authority

The Financial Conduct Authority (FCA) is an independent body that regulates most of the financial services industry in the UK. The FCA has an overarching strategic objective, which is to ensure financial markets work well. To do this, the FCA follows three operational objectives and is also obliged to have regard to the regulatory principles when discharging its functions.

Operational objectives

The FCA has a wide range of rule-making. investigatory and enforcement powers in order to meet three operational objectives:

  • consumer protection
  • integrity of the UK financial system
  • competition

Regulatory principles

The FCA is also obliged to give regard to the six regulatory principles which involve awareness of:

  • efficiency and economy
  • proportionality
  • consumer responsibilities
  • responsibility of senior management
  • openness and disclosure
  • transparency

The FCA regulates approximately 26,000 firms and is responsible for the FOS, oversees the Money Advice Service, and has responsibility for the FSCS.

Competition and Markets Authority

Competition and Markets Authority

The Competition and Markets Authority (CMA) succeeded to the role formerly carried out by the Competition Commission from 1 April 2014, together with assuming other work from the disbanded OFT. The CMA works with HM Treasury and the FCA as an independent public body to ensure that competition between companies in the UK remains fair for the benefit of business, consumers and the economy as a whole.

The CMA has responsibilities for:

  • investigating mergers that could restrict competition;
  • conducting market studies and investigations in markets where there may be competition and consumer problems;
  • investigating where there may be breaches of UK or EU prohibitions against anti-competitive agreements and abuses of dominant positions;
  • bringing criminal proceedings against individuals who commit the cartel offence;
  • enforcing consumer protection legislation to tackle practices and market conditions that make it difficult for consumers to exercise choice;
  • cooperating with sector regulators and encouraging them to use their competition powers; and
  • considering regulatory references and appeals.

The new Competition and Markets Authority has five strategic goals, which are:

  1. Delivering effective enforcement — to deter wrongdoing, protect consumers and educate businesses.
  2. Extending competition frontiers — by using the markets regime to improve the way competition works, particularly within the regulated sectors.
  3. Refocusing consumer protection — working with its partners to promote compliance and understanding of the law, and empowering consumers to make informed choices.
  4. Achieving professional excellence— by managing every case efficiently, transparently and fairly, and ensuring all legal, economic and financial analysis is conducted to the highest international standards.
  5. Developing integrated performance — through ensuring that all staff are brought together from different professional backgrounds to form effective multi-disciplinary teams and provide a trusted competition adviser across the Government.

Financial Stability

A stable financial system is a key ingredient for a healthy and successful economy. People need to have confidence that the system is safe and stable, and that it functions properly to provide critical services to the wider economy. It is important that problems in particular areas do not lead to disruption across the financial system.

The FCA and the Bank of England (through the PRA) both have a statutory objective to ‘contribute to protecting and enhancing the stability of the financial systems of the United Kingdom‘. The Bank does this through its risk assessment and risk reduction work, market intelligence functions, payments systems oversight, banking and market operations (including, in exceptional circumstances by acting as lender of last resort), and resolution work to deal with distressed banks.

Financial stability is also a shared objective of the Bank, HM Treasury and the FCA. The Bank’s financial stability role is set out in a Memorandum of Understanding between the Bank, HM Treasury and the FCA. A high-level committee from these organisations — the Council for Financial Stability — meets regularly, focusing on managing systemic risk and protecting financial stability.

The Banking Act 2009 increases the responsibilities, powers and role of the Bank. A key part of the act is the creation of the Special Resolution Regime to provide the tripartite authorities with a framework to deal with failing banks. The act gives the Bank a statutory financial stability objective and creates a new Financial Stability Board to advise on and monitor the nature and implementation of the Bank’s financial stability strategy. In addition, it formalises the Bank’s oversight of payment systems and introduces a new framework for the issue of Scottish and Northern Ireland banknotes.

Growing cross-border financial activity heightens the importance of UK authorities working effectively with counterparts in other countries. The Bank has regular contact with central banks, regulators, and other authorities outside the UK that have an interest in the maintenance of financial stability. It also participates in the activities of key international bodies involved in global Financial stability work, such as the FSF.

Finally, the Financial Services Act 2010 had given the former regulator, the FSA, a new objective to contribute to protecting and enhancing UK financial stability. The FCA is now required to cooperate appropriately with the Treasury, the Bank of England and other relevant bodies in pursuing this objective. The act requires the FCA to have and review a financial stability strategy. It enables the FCA to gather information from entities including unregulated entities for financial stability purposes. It also requires the FCA to consider the impact that international events and circumstances could have on financial stability in the UK.

Financial Stability Board

Financial Stability Board

The Financial Stability Board (FSB) was established in April 2009 as the successor to the Financial Stability Forum (FSF). In November 2008 the leaders of the G20 countries had called for a larger membership and the expanded FSF was re-established as the FSB with a broadened mandate to promote financial stability. The FSF was founded in 1999 by the G7 Finance Ministers and Central Bank Governors to recommend new structures for enhancing co-operation among the various national and international supervisory bodies and international financial institutions so as to promote stability in the international financial system.

The FSB has been established to coordinate at the international level the work of national financial authorities and international standard setting bodies and to develop and promote the implementation of effective regulatory, supervisory and other financial sector policies. It brings together national authorities responsible for financial stability in significant international financial centres, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

The mandate of the Financial Stability Board is to:

  • assess vulnerabilities affecting the financial system and identify and oversee action needed to address them;
  • promote coordination and information exchange among authorities responsible for financial stability;
  • monitor and advise on market developments and their implications for regulatory policy;
  • advise on and monitor best practice in meeting regulatory standards;
  • undertake joint strategic reviews of the policy development work of the international standard setting bodies to ensure their work is timely, co-ordinated, focused on priorities, and addressing gaps;
  • set guidelines for and support the establishment of supervisory colleges;
  • manage contingency planning for cross-border crisis management, particularly with respect to systemically important firms;
  • collaborate with the IMF to conduct Early Warning Exercises.

As obligations of membership, members of the FSB commit to pursue the maintenance of financial stability, maintain the openness and transparency of the financial sector, implement international Financial standards, and agree to undergo periodic peer reviews, using among other evidence IMF/World Bank public Financial Sector Assessment Program reports.

The FSB, working through its members, seeks to give momentum to a broad-based multilateral agenda for strengthening financial systems and the stability of international financial markets. The necessary changes are enacted by the relevant national financial authorities.

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