Banks play a key role in the financial system and wider economy. Therefore governments have been concerned about regulating banks to avoid banks defaulting on promises. If one bank gets into difficulties through reckless borrowing or illegal activities it can harm the whole banking system.
The credit crunch of 2007-08 caused the Government to consider stricter banking regulations.
Main areas of UK banking regulation
Prudential Regulation Authority (PRA)
- Part of the Bank of England. It makes sure firms do business safely and reduce their chances of getting into financial difficulty.
- Regulates the safety and soundness of banks, building societies, and insurers
- Focuses on capital adequacy, risk management, and corporate governance
PRA at Bank of England
Financial Conduct Authority (FCA)
Independent from the Bank of England
“We enable a fair and thriving financial services market, for the good of consumers and the economy. ”
Ensures fair treatment of consumers and integrity in financial markets. Can investigate firms who are treating consumers unfairly.
Regulates conduct, disclosure, and product governance
Financial Policy Committee (FPC)
Part of the Bank of England. Oversees systemic risks and macroprudential regulation
- It also has power to take action to counter those risks. An example of such a risk is unsustainable levels of debt and credit growth.
- FPC at Bank of England
Regulations and Frameworks
Basel III
- UK banks must adhere to capital and liquidity standards based on international Basel III agreements
- Sets minimum capital ratios leverage ratio, and liquidity coverage ratio
2.3. Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD)
UK versions of the EU’s CRR and CRD, adjusted post-Brexit
Regulate capital adequacy and governance standards
3. Consumer Protection
Financial Services Compensation Scheme (FSCS)
Protects customers if a bank fails (up to £85,000 per person per institution)
Payment Services Regulations
Implements PSD2 (as retained in UK law post-Brexit)
Regulates payment services, strong customer authentication (SCA), and open banking
Conduct of Business Rules
Enforced by the FCA, these rules cover how banks sell products, treat customers, and handle complaints
Anti-Money Laundering (AML) and Compliance
Banks must comply with Money Laundering Regulations 2017 (amended post-Brexit)
Conduct customer due diligence (CDD), report suspicious activity (SARs), and maintain AML programs
Post-Brexit Regulatory Framework
The UK retained much of the EU financial regulation but is gradually modifying it
The Financial Services and Markets Act 2023 gives UK regulators more autonomy to shape future rules