The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) replaced the FSA on 1st April 2013 to regulate the UK’s financial industry in a bid to improve the regulation and conduct of the banks and financial services.
Since its introduction as a regulatory body by Gordon Brown in 1997, the FSA has been responsible for overseeing the regulation of the UK’s entire financial services industry. Criticised by current Chancellor George Osborne as ‘incoherent’, the FSA came under fire for failing to rein in banks during the banking crisis, as well as its shortcomings in preventing major banking scandals- notably the mis-selling of PPI and Libor rigging scandals, both of which surfaced under the watch of the FSA.
As part of the new system, the FCA and PRA, anchored by the Bank of England’s Financial Policy Committee (FPC), will replace the FSA’s former role in regulating the whole industry. With the replacement of the FSA by two new regulatory bodies, each will focus on regulating individual elements of the industry in attempts to better improve the management of the sector, improve standards and protect consumers.
Importantly for consumers, the FCA will aim to promote competition amongst banks and will have increased powers to ban products deemed dangerous for consumers. There are expectations that the changes will help to extinguish the irresponsible bank culture which has weakened consumer trust in banks and contributed towards the 2008 banking crisis. The PRA will govern banks building societies and credit unions, insurers and investment firms.
As part of the reform, the Bank of England will now be at the heart of the new regulatory system, as the FPC and PRA will both sit within the bank giving the Bank of England regulatory powers which had previously been removed under Gordon Brown’s implementation of the FSA. The FCA will remain outside of the bank, but will still maintain the authority to impose fines.
While the breakdown of the FSA into two new regulatory bodies has widely been accepted as a step in the right direction in effectively regulating the financial industry, the strategy hasn't been received without criticism. Critics have argued that the Bank of England will have excessive powers under the changes while others have suggested that the new structure will bring little change to the condemned FSA structure.
We can only hope that for consumers, the breakup of the FSA will prove beneficial in not only safeguarding customers and policing the banking and insurance sector as a whole, but it will also work to rebuild trust amongst British consumers who over recent years have been let down by the UK’s widely criticised banking industry and culture.
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