Wine as an investment – the wine merchant’s risk
On 1 April 2013, the FSA was replaced by two new regulatory bodies with the aim of promoting “outcomes-based regulation, intensive firm supervision and credible deterrence”.
The Prudential Regulation Authority (the PRA) (a subsidiary of the Bank of England ((BoE)) is responsible for promoting the stable and prudent operation of the financial system through regulation of all deposit-taking institutions (eg. banks, building societies, credit unions), insurers and investment banks. The general objective of the PRA is ‘to promote the safety and soundness of PRA-Authorised persons’ on a micro-economic level through (1) ensuring that PRA businesses conduct themselves in a way unlikely to threaten the stability of the sector as a whole, and (2) by minimising the effect that the failure of a PRA business may have on the wider economy. Its role is to monitor the performance of individual firms in order to minimise the chances of those businesses failing, however there is no statutory obligation to avoid firms from failing. If they do fail, the PRA will be responsible for managing the fall out in an orderly manner.
It has statutory powers to draft and implement new rules and procedures. It will set ‘Threshold Conditions’ which firms will have to meet in order to operate in the financial sector, including minimum capital and liquidity requirements, and the need to employ suitably experienced personnel in key positions. It has the power to order investigations, amend the scope of a firm’s permitted activities, or impose financial penalties where requirements are not met.
The Financial Conduct Authority (the FCA) is responsible for regulation of conduct in retail and wholesale financial markets and the infrastructure that supports those markets. It also has responsibility for the prudential regulation of firms that do not fall under the PRA’s scope (eg. asset managers). The FCA’s statutory strategic objective is to ensure that the financial markets ‘function well’ through securing an appropriate degree of protection for consumers, by protecting the integrity of the UK financial system and by promoting effective competition. The FCA essentially takes over the FSA’s criminal prosecution and regulatory enforcement responsibilities and powers. It assumes the functions of the UK Listing Authority. The FCA remains separate from the BoE but with a statutory duty to co-operate with the PRA.
Alongside these bodies, the Financial Policy Committee (‘FPC’) is a powerful committee within the BoE whose membership will include the Governor of the BoE, the Deputy Governors and the Chief Executive of the FCA. The FPC will assist the BoE in protecting and enhancing the stability of the financial system at a macro-economic level, by identifying and eliminating systemic risks to the financial sector as a whole. The FPC will have the power to make recommendations and/or to give directions to the PRA and the FCA.
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