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The Importance of Financial Regulation in the UK

Financial regulation is important in protecting the treatment of consumers throughout the financial services. It helps to prevent people from being sold financial products they cannot afford, thereby reducing unethical practices throughout this sector.

Effective, transparent regulation can further help to maintain the financial stability of the country, preventing such financial crises as that seen in 2008 from happening again. Financial regulation is therefore important in protecting UK consumers, the financial sector as a whole, and the impact it has on the country's financial stability.

The UK's financial regulators are also regularly updating regulation and therefore also rolling out new regulations and legislation as the industry needs it. in recent times, the payday loans market has been subject to a lot of regulation. More recently, the Senior Managers and Certification Regime (SMCR) has formed some of the latest regulations being rolled out in the UK.

How are financial services and markets regulated in the UK?

There are many different organisations within the UK that help to regulate financial services and markets, including what many describe as the UK's financial watchdog, the Financial Conduct Authority (FCA).

The FCA is an organisation that regulates the conduct of over 59,000 firms. It aims to make financial markets and financial services work fairly and effectively, helping to further maintain the country's economy.

In today's world, in which more and more financial service providers are online based, with the changing of the UK's high street, with retail changing and businesses changing to service-based financial models (Source: Bobblehat), it has become more important than ever that these markets are regulated properly.

Firms that offer financial services will more likely than not have to be registered or authorised by the FCA. This helps to monitor financial services throughout the UK, ensuring they are all undertaking fair, ethical practices that will help to promote financial stability within the sector. Whether a firm will have to be authorised, registered or both will depend entirely on the types of financial activities they conduct.

There are numerous other institutes that work alongside the FCA to help with financial regulation throughout the UK, the main ones including those listed below:

  • Bank of England
  • Financial Policy Committee
  • Prudential Regulation Authority
  • The Treasury

Each of these bodies help to regulate a certain aspect within the country's financial sector, collectively helping to maintain fairness to UK consumers, and financial stability to the country overall.

How does the Bank of England regulate financial services?

The Bank of England is the UK's central bank. Unlike other banks, it does not offer loans or accounts for the public. The Bank of England holds many different responsibilities, helping to maintain the financial stability of the UK. This includes setting the country's official interest rates (bank rate), which has a direct influence on the cost of mortgage rates and loans.

The Bank of England is also home to the Financial Policy Committee (FPC), which looks out for risks throughout the financial system, and helps to manage these risks. The Financial Policy Committee helps to both identify and manage risks and weaknesses within the country's whole financial system. Established in 2013 by UK Parliament, the FPC was created as a component of the new regulatory system to help both strengthen and maintain financial stability following the financial crisis.

Additionally, the Bank of England also uses its Prudential Regulation Authority (PRA) to oversee financial market infrastructures.

How does the Prudential Regulation Authority regulate financial services?

An organisation of the Bank of England, the Prudential Regulation Authority (or PRA) helps to regulate the financial sector of the UK by both regulating and supervising a near 1,500 firms in the financial services. These include banks, credit unions, building societies and major investment firms and insurers.

The PRA set standards for these firms to follow, and supervise to ensure that they are meeting the expectations set out for them. This regulatory body will assess firms based on their current state, and the potential risks that could occur in the future. They help to ensure that financial firms do not significantly disrupt critical financial services.

How does The Treasury regulate financial services?

HM Treasury is the economic and finance ministry for the government. The ministry has multiple responsibilities, including those quoted from the government website below:


public spending: including departmental spending, public sector pay and pension, annually managed expenditure (AME) and welfare policy, and capital investment

financial services policy: including banking and financial services regulation, financial stability, and ensuring competitiveness in the City

strategic oversight of the UK tax system: including direct, indirect, business, property, personal tax, and corporation tax

the delivery of infrastructure projects across the public sector and facilitating private sector investment into UK infrastructure

ensuring the economy is growing sustainably


Through such responsibilities as its financial services policy, HM Treasury helps to improve financial regulation across the UK, protecting both consumers and the economy from unfair practices throughout financial markets and services.

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