Regulation of UK financial system:

The government of Margaret Thatcher is credited with commencing the financial markets
deregulation process in 1986 where he introduced the Big Bang policy. The Big Bang policy was
successfully introduced to stop the decline of London as a global financial powerhouse with the 1997
Labour government expanding the policy. However, the financial crisis of 2008-2009 exposed the
weaknesses of existing policies leading to the adoption of the Financial Services Act (2012) in the
UK, which empowered the Bank of England (BoE)to regulate the financial system. It formed the
Prudential Regulation Authority (PRA) which is a subsidiary of the BoE, and the Financial Conduct
Authority (FCA). The FPC or Financial Prudence Committee focuses on macroprudential regulation
while the PRA and FCA focus on micro-prudential regulation. Macroprudential regulation regulates
financial system stability by the identity, monitoring and action taking to minimize/eliminate risk.
Micro prudential regulation on the other hand identifies, monitors and manages risks relating to
individual firms.
- The Financial Policy Committee (FPC):
The interim FPC started in 2011 but the establishment wasn’t until 1st April 2013 where it
was primarily tasked with identifying, monitoring and taking necessary action to eliminate or
minimize UK financial system risks, and increase system resilience to shocks like the one
experienced in the global financial crisis 0f 2008-2009. The FPC secondary task was
supporting government economic policy. Its powers include directing the PRA and FCA and
making compliance or explanation recommendations to the two authorities including
government.
- The Prudential Regulation Authority (PRA) :
The PRA sets the standards for and supervises banks, credit unions, building societies,
investment firms and insurance companies at the firm level. It may set capital and liquidity
ratios to be maintained to ensure soundness of individual financial firms to enhance stability
levels of the UK financial system.
- The Financial Conduct Authority (FCA):
The FCA sets rules, investigates and enforces regulation in the financial services industry
through promoting competition among the players and consumer protection. This leads to a
financial system that is resilient and stable.

Réglementation du système financier britannique :

C'est au gouvernement de Margaret Thatcher que l'on doit le lancement du processus de
déréglementation des marchés financiers en 1986, avec l'introduction de la politique du Big Bang. La
politique du Big Bang a été introduite avec succès pour arrêter le déclin de Londres en tant que
puissance financière mondiale, et le gouvernement travailliste de 1997 a étendu cette politique.
Cependant, la crise financière de 2008-2009 a révélé les faiblesses des politiques existantes, ce qui a
conduit à l'adoption de la loi sur les services financiers (2012) au Royaume-Uni, qui a donné à la
Banque d'Angleterre (BoE) le pouvoir de réglementer le système financier. Cette loi a donné
naissance à L'autorité de régulation prudentielle (PRA), une filiale de la BoE, et à L'autorité de
conduite financière (FCA). Le FPC ou Le Comité de politique financière se concentre sur la
réglementation macroprudentielle tandis que la PRA et la FCA se concentrent sur la réglementation
microprudentielle. La réglementation macroprudentielle régit la stabilité du système financier par
l'identification, la surveillance et la prise de mesures visant à minimiser/éliminer les risques. La
réglementation microprudentielle, quant à elle, identifie, surveille et gère les risques liés aux
entreprises individuelles.
Le Comité de politique financière (FPC) :
Il avait pour mission principale d'identifier, de surveiller et de prendre les mesures nécessaires pour
éliminer ou minimiser les risques du système financier britannique, et d'accroître la résilience du
système face à des chocs tels que ceux de la crise financière mondiale de 2008-2009. La tâche
secondaire du FPC était de soutenir la politique économique du gouvernement.
Ses pouvoirs comprennent la direction de la PRA et de la FCA et la formulation de recommandations
de conformité ou d'explication aux deux autorités, y compris au gouvernement.
L'autorité de régulation prudentielle (PRA) :
La PRA fixe les normes pour les banques, les coopératives de crédit, les sociétés de crédit immobilier,
les entreprises d'investissement et les compagnies d'assurance et les supervise au niveau des
entreprises. Elle peut fixer des ratios de capital et de liquidité à maintenir pour assurer la solidité des
entreprises financières individuelles afin de renforcer les niveaux de stabilité du système financier
britannique.
L'autorité de conduite financière (FCA) :
La FCA fixe des règles, mène des enquêtes et applique la réglementation dans le secteur des services
financiers en favorisant la concurrence entre les acteurs et la protection des consommateurs. Cela
conduit à un système financier résilient et stable.

History of the regulations of the financial system:

Banks’ managers and owners understand the risks associated with the banking system better than
outsiders. However, as businesses try to make a profit, they may sometimes not act as safely as
depositors or investors would want them to. When banks want to be profitable, they might take too
many risks assuming the result will be favourable for them. For instance, when trying to make money,
banks sometimes sell products such as PPI (payment protection insurance) that aren't suitable for their
customers. This, for example, resulted in the Global Financial Crisis during 2007 and 2008.
Before 2001, the Bank of England largely controlled the financial regulation in the UK. In 1985, a
self-regulatory board - Securities and Investments Board- was created to regulate all financial matters
in the UK. After a series of scandals with the Barings Bank in the 1990s, this self-regulatory organ
was dissolved.
In 1997, this same board was changed to the Financial Services Authority (FSA), which acted as an
external regulator with a range of regulatory powers. This was established in the 1998 Bank of
England Act, which radically changed the role of the Central Bank, thereby transferring all
responsibility and supervisory authority to the FSA.
However, the FSA did not exercise this power until 2001. That’s when the Bank of England was
instructed to concentrate on the banking responsibilities while the FSA’s task was to focus
on the financial system regulations.
During the Global Financial Crisis, multiple regulatory failures forced the Treasury to abolish the
FSA. This governing body was mostly criticised for failing to spot the lending boom before 2007,
which subsequently resulted in the bust and collapse of the Northern Rock bank and the Royal Bank
of Scotland.
From 1 April 2013, the FSA was divided into three new committees: the Financial Policy Committee
(FPC), the Prudential Regulation Authority (PRA) within the Bank of England, and the Financial
Conduct Authority (FCA) as an external agency.
Through the FPC, the Bank of England regained its responsibility for maintaining financial
stability. The FPC is primarily responsible for macroprudential regulations, whereas the other two
agencies handle microprudential regulations.
The UK’s financial regulators:
Let’s study these financial regulating committees in more detail.
The Financial Policy Committee (FPC):
The independent FPC was formally established on 1 April 2013. Systemic risks could trigger the
collapse of the whole or a significant part of the financial system (like in 2007–08, the collapse of one
bank could affect other banks as well and have devastating consequences). That is why the FPC’ws
main role is to identify the risks and take appropriate action to make the system more resilient to
shocks.
Its secondary objective is to support the economic policy of the government.
The Prudential Regulation Authority (PRA):
The Prudential Regulation Authority’s (PRA) main function is to oversee different types of financial
institutions such as banks, credit unions, etc. It does so by assessing the risks and ensuring that they
are managed according to the regulations set in place. This enables the PRA to build and maintain a
stable financial system in the UK.
Although the PRA limits the number of liabilities a financial institution has, it doesn’t aim for ‘zero-
failure’. In case a firm experiences bankruptcy, the PRA quickly addresses it to prevent it from
impacting the rest of the financial system.
The Financial Conduct Authority (FCA):
The FCA aims to protect consumers by promoting competition between providers of financial
services. This regulatory body makes rules, enforces them, and investigates financial service
providers.
Types of financial system regulations:
Since the financial crisis, the UK has taken steps to isolate the risk-taking side of financial
markets from the everyday provision of financial services, as well as to enhance banking
regulation. In April 2013, a new regulatory framework governing the provision of financial services in
the United Kingdom went into force.
 The microprudential regulation of UK financial services is the regulation and oversight of
individual financial institutions to ensure that they remain solvent and act in the best interests
of their customers. In essence, this implies ensuring that each bank’s balance sheet is resilient
to economic and financial shocks.
 Macroprudential regulation, on the other hand, is concerned with the entire financial
system. The ultimate goal of macroprudential regulation, according to the IMF, is to prevent
long-term wealth losses by minimising the accumulation of system-wide financial risk.