Central Banks - Regulating the UK Banking Industry

In the United Kingdom, the banking industry is primarily regulated by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). The FCA is responsible for regulating the conduct of financial firms to ensure they treat their customers fairly, while the PRA is responsible for ensuring that banks, building societies, and other financial institutions operate in a safe and sound manner.

The FCA was created in 2013 and took over the regulatory functions of the Financial Services Authority (FSA). Its primary objective is to ensure that financial markets are fair, transparent, and operate in the interests of consumers. The FCA regulates the conduct of banks, insurance companies, financial advisers, and other financial firms.

The PRA is a subsidiary of the Bank of England and was established in 2013 to regulate the prudential aspects of financial firms. The PRA is responsible for ensuring that banks, building societies, and other financial institutions are financially stable and can withstand financial shocks. The PRA also supervises the activities of financial firms to ensure they comply with relevant laws and regulations.

Together, the FCA and PRA form the "twin peaks" regulatory system in the UK, with the FCA responsible for conduct regulation and the PRA responsible for prudential regulation. The Bank of England also plays a role in regulating the banking industry, particularly through its oversight of systemic risks and its role as lender of last resort.

Here are some examples of when the FCA and PRA have intervened as regulators in the UK banking industry in recent years:

1. Royal Bank of Scotland (RBS) misconduct (2014): The FCA fined RBS £56 million for misconduct related to its handling of customer complaints about mortgage arrears. The FCA found that RBS had failed to provide appropriate levels of support to customers in financial difficulty and had not properly investigated their complaints.
2. Co-operative Bank capital shortfall (2013): The PRA intervened in the Co-operative Bank's restructuring plans following the discovery of a £1.5 billion capital shortfall. The PRA required the bank to raise additional capital and implement a recovery plan to address the shortfall.
3. Barclays LIBOR manipulation (2012): The FCA fined Barclays £59.5 million for misconduct related to the manipulation of the London Interbank Offered Rate (LIBOR). The FCA found that Barclays had attempted to manipulate LIBOR to benefit its trading positions and had made false or misleading submissions to the rate-setting process.
4. HBOS fraud scandal (2017): The FCA fined six individuals a total of £3.5 million for misconduct related to a £245 million fraud at HBOS. The FCA found that the individuals had conspired to enrich themselves at the expense of the bank and its customers, and had failed to act with integrity.

These examples illustrate the important role played by the FCA and PRA in regulating the UK banking industry, and their willingness to intervene when they detect misconduct or deficiencies in governance or risk management. By enforcing rules and regulations and holding financial institutions accountable for their actions, the FCA and PRA help to maintain the stability and integrity of the UK financial system.