CII R01 Regulatory Bodies and Their Roles 1 — Questions and Answers
Question 1: What is the 'twin-peaks' model of financial regulation in the UK?
- Two financial exchanges operating in London
- The separation of conduct regulation (FCA) and prudential regulation (PRA) into two distinct regulators (Correct answer)
- Two levels of authorisation for financial firms
- A dual reporting system for financial statements
Correct answer: The separation of conduct regulation (FCA) and prudential regulation (PRA) into two distinct regulators
The UK's twin-peaks model, established by the Financial Services Act 2012, separates financial regulation between the FCA (responsible for conduct) and the PRA (responsible for prudential regulation of deposit-takers, insurers, and major investment firms).
Question 2: What is the Prudential Regulation Authority (PRA)?
- An EU regulatory body
- A part of the Bank of England responsible for prudential regulation of banks, insurers, and major investment firms (Correct answer)
- A private sector self-regulatory organisation
- The FCA's appeals body
Correct answer: A part of the Bank of England responsible for prudential regulation of banks, insurers, and major investment firms
The PRA is part of the Bank of England and is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers, and major investment firms, focusing on their safety and soundness.
Question 3: What is the role of HM Treasury in financial regulation?
- It directly regulates all financial firms
- It sets the overall legal and policy framework for financial regulation, including proposing legislation (Correct answer)
- It processes consumer complaints about financial firms
- It manages the FCA's budget
Correct answer: It sets the overall legal and policy framework for financial regulation, including proposing legislation
HM Treasury is the government department responsible for the overall legal and institutional framework for financial services regulation. It proposes legislation, sets policy direction, and appoints the boards of regulatory bodies.
Question 4: What is the Bank of England's Financial Policy Committee (FPC)?
- A committee that sets mortgage rates
- A committee responsible for identifying and addressing systemic risks to UK financial stability (Correct answer)
- A committee that handles individual consumer complaints
- A committee that approves new financial products
Correct answer: A committee responsible for identifying and addressing systemic risks to UK financial stability
The FPC is a committee of the Bank of England responsible for macroprudential regulation. It identifies, monitors, and takes action to remove or reduce systemic risks to protect and enhance the stability of the UK financial system.
Question 5: What is the Payment Systems Regulator (PSR)?
- A division of the FCA
- An independent economic regulator for payment systems in the UK, promoting competition and innovation (Correct answer)
- A body that processes payments between banks
- An EU payment regulation body
Correct answer: An independent economic regulator for payment systems in the UK, promoting competition and innovation
The PSR is an independent subsidiary of the FCA that regulates payment systems in the UK. It promotes competition, innovation, and the interests of service users in payment systems.
Question 6: What is the role of the Competition and Markets Authority (CMA) in financial services?
- It regulates all financial services firms
- It promotes competition across all markets including financial services, and can investigate anti-competitive practices (Correct answer)
- It only deals with mergers between banks
- It has no role in financial services
Correct answer: It promotes competition across all markets including financial services, and can investigate anti-competitive practices
The CMA promotes competition across all sectors, including financial services. It can investigate anti-competitive practices, review mergers, and conduct market studies. It works alongside the FCA, which has concurrent competition powers.
CII R01 Regulatory Bodies and Their Roles 1
What is the 'twin-peaks' model of financial regulation in the UK?