The financial services environment and the regulatory framework
The statutory architecture
UK financial regulation rests on the Financial Services and Markets Act 2000 (FSMA). Since 2013 the 'twin peaks' model has operated: the Prudential Regulation Authority (PRA), a subsidiary of the Bank of England, supervises the safety and soundness of banks, building societies, insurers and designated investment firms; the Financial Conduct Authority (FCA) regulates conduct for all authorised firms and prudentially supervises firms outside the PRA's remit. The Bank's Financial Policy Committee (FPC) watches systemic risk but does not authorise or supervise individual firms. HM Treasury owns the legislative framework and appoints the regulators' boards.
The FCA has a strategic objective (ensuring relevant markets function well) and three operational objectives: consumer protection, integrity and competition. The PRA has two statutory objectives: general safety and soundness and, for insurers, policyholder protection. Both must have regard to the principles of good regulation, including proportionality, efficiency and economy, and sustainable growth.
Other bodies in the family
The Financial Ombudsman Service (FOS) resolves complaints, the Financial Services Compensation Scheme (FSCS) pays redress when firms fail, and MoneyHelper provides free guidance. The Payment Systems Regulator, Information Commissioner's Office and National Crime Agency sit alongside but are not prudential regulators.
Traps
Questions often confuse the PRA and FCA, or assume the FPC supervises firms. The PRA's policyholder protection objective applies only to insurance. 'Competition' is an FCA operational objective, not a PRA one. The FCA does not set the Bank Rate.
Rule of thumb
For a building society: PRA for prudential soundness, FCA for mortgage conduct and complaints. For a small mortgage broker: FCA for both conduct and prudential matters.