Question

how far did the financial conduct authority (United Kingdon based) reduce systemic risk?

Answer 1

The banking sector is regulated for prudential purposes by the Prudential Regulation Authority (PRA), which is part of the Bank of England, the UK central bank. A committee of the Bank of England, the Prudential Regulation Committee (PRC), is responsible for exercising the functions of the Bank in its role as the PRA. The Financial Conduct Authority (FCA) is the conduct regulator for the banking sector and coordinates closely with the PRA. The Financial Policy Committee (FPC), which operates from within the Bank of England, acts as the macro-prudential regulator for the UK financial system.

The FCA must, act in a way that is compatible with its strategic objective and advances one or more of its operational objectives. The FCA’s overarching strategic objective is ensuring that the financial markets function well. The FCA’s operational objectives are:

1. Securing an appropriate degree of protection for consumers;

2. Protecting and enhancing the integrity of the UK’s financial system; and

3. Promoting effective competition in the interests of consumers in the markets for regulated financial services.

Other regulated activities that may be relevant to banks for the purposes of the UK financial services regime include:

1. Dealing in investments as principal;

2. Dealing in investments as agent;

3. Arranging deals in investments;

4. Managing investments;

5. Safeguarding and administering investments (ie, custody); and

6. Providing investment advice and mortgage lending.

What is systemic risk

Systemic risk refers to the risk of a breakdown of an entire system rather than simply the failure of individual parts. In a financial context, it captures the risk of a cascading failure in the financial sector, caused by interlinkages within the financial system, resulting in a severe economic downturn.

Measures taken to regulate at the Microprudential level include:

1. Ensuring staff are trained to understand risk, and are certified as competent.
2. Establishing rules for:

   The valuation of financial assets

   Assessing the riskiness of assets

3. Deciding which assets can be held by institutions.
4. Setting rules regarding the trading of assets.

FCA was working to reduce the systemic risk but recent event of Brexit created a plethora of new issues which might take some time to resolve.