The Financial Conduct Authority
Despite its recent spate of doling out heavy fines to banks, the Financial Services Authority had a reputation for being too toothless a watchdog, unable to rein in the excesses of the City when it really mattered. The new FCA takes on all of the FSA’s old consumer protection responsibilities, but with a few new powers to boot. It can force banks to stop selling certain products if it gets wind any mis-selling habits, and it can ban those products for a year whilst it investigates whether the product is fair on the consumer or business it’s aimed at.
This new body is the only one that is not part of the Bank of England, and will be holed up in Canary Wharf, and captained by chief executive Martin Wheatley. He has a regulators’ background having worked for the FSA before as well as heading up the Hong Kong Securities and Futures Commission.
Some bankers are concerned that the FCA’s powers to ban products will put the brakes on the fast-paced ‘innovation’ that have so benefited the UK in recent years (ahem), but them’s the breaks.
Prudential Regulation Authority
Interesting choice of name, given that insurance firm Prudential has just been fined £30m for not telling the FSA what it was up to. But presumably the word is being use here in the sense that it has more 'prudence, common sense and good judgement' than required. Some 1,700 banks, building societies, insurance firms and investment outfits come under the PRA's watchful eye today. It is part of the Bank of England, which has stocked it with over a thousand employees.
Their job is to ‘promote the safety and soundness’ of all the firms in its remit, as well as ‘taking action to preserve financial stability’ when companies have dodgy business models or are overloaded with risk.
It is headed up by Andrew Bailey, who is also on the board of the FPC of the Bank of England. Being part of the Bank should help the two committees to co-operate more effectively, in theory.
Financial Policy Committee
It is felt by many in government and amongst regulatory types that the crash of 2008 happened at least partly because nobody was assigned the specific responsibility of monitoring the financial system for signs of severe weakness, like huge amounts of debt and tiny capital buffers. The FPC will take on this role. This body has already been running on a so-called interim arrangement since 2011, and only last week, the interim body revealed that banks have not counted fines and compensation cash in their balance sheets, meaning they effectively have a £25bn shortfall between them.
Issues like this will be monitored closely by the FPC, which basically takes responsibility for spotting danger signs and getting them addressed by other bodies. If there is another crash, we do not envy the people working here.
The governor of the Bank of England – currently Mervyn King, soon to be Mark Carney, runs this body.