The Financial Services Authority (FSA) has been dismantled and a new system of governance in the sector has been established.
Most of the day-to-day regulation and supervisory powers of the FSA in relation to banks, building societies and insurers has been transferred to a new Prudential Regulation Authority (PRA). The PRA has been established as a subsidiary of the Bank of England, whilst a new Financial Policy Committee (FPC), also within the Bank, has been handed responsibility for addressing wider 'macro-prudential' issues. The FPC's duty is to "monitor and respond to systemic risks" to economic and financial stability, according to the Treasury.
"In promoting safety and soundness, the PRA focuses primarily on the harm that firms can cause to the stability of the UK financial system," the PRA said in a statement on its website. "A stable financial system is one in which firms continue to provide critical financial services – a precondition for a healthy and successful economy."
In addition, a new Financial Conduct Authority (FCA) has taken on the conduct and compliance functions that the FSA previously performed, whilst it also has duties with regards to the prudential supervision of forms that are not otherwise supervised by the PRA.
The FCA's objective is to ensure that the relevant markets "function well" while seeking an appropriate degree of protection for consumers and protecting and enhancing the integrity of the UK's financial system. It will also have a duty to carry out its general functions "in a way which promotes effective competition", as far as is compatible with its consumer protection and integrity objectives.
The reforms were delivered through the Financial Services Act 2012. The Act provides the FCA with the power to restrict the sale of, or even prohibit, the sale of specific financial products without consultation. In addition, the Chancellor now has the power to direct the Bank of England where there is a risk to public funds and where there is a "serious threat to financial stability".
The Government has previously said that the new authorities will be charged with looking beyond "tick-box compliance". The new structure will "foster a regulatory culture of judgement, expertise and proactive supervision", it said.
At the time that the Financial Services Act 2012 received Royal Assent in December, Financial Secretary to the Treasury Greg Clark said that the new regime would replace a "regulatory structure which palpably failed when tested by crisis". He said the new framework was "designed to enhance financial stability in the future and protect consumers" and that the focus of the regime should be "on rebuilding competition in a banking sector that has become too concentrated".