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.
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.
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
The FCA is also obliged to give regard to the six regulatory principles which involve awareness of:
- efficiency and economy
- consumer responsibilities
- responsibility of senior management
- openness and disclosure
The FCA regulates approximately 26,000 firms and is responsible for the FOS, oversees the Money Advice Service, and has responsibility for the FSCS.