Risk, Regulation and Compliance

Assignment Brief

You are required to provide an introduction, and the body of the work with a final conclusion. The work should provide discussion, critical reflection and thinking. You need to provide effective citations, and referencing should be in the Harvard methodology; attention to detail is essential and reflects good scholarship. 

Required: 

Choose a country; examine in detail the financial regulatory system, then discuss the positive and negative aspects of the said system. Whilst critically reflecting upon and discussing the chosen regulatory framework you need to consider the wider environment, in terms of political ideology, economic development, culture, and technology.

Sample Answer

The Financial Regulatory System in the United Kingdom: A Critical Examination

Introduction

A stable and transparent financial regulatory system is essential for ensuring market integrity, protecting consumers, and supporting economic development. In the United Kingdom (UK), one of the world`s leading financial centres, the regulatory system plays a vital role in overseeing banks, investment firms, insurance companies, and other financial institutions. This essay explores the UK’s financial regulatory framework, examining its structure, strengths, and weaknesses. It also offers a critical reflection on how political ideology, economic development, culture, and technology influence this system. Effective citations are provided using the Harvard referencing method to ensure academic rigour and integrity.

Overview of the UK Financial Regulatory System

The UK employs a “twin peaks” model of financial regulation, established after the 2008 global financial crisis. This structure involves two main bodies:

1. The Financial Conduct Authority (FCA) – focuses on consumer protection, market integrity, and competition (FCA, 2024).

2. The Prudential Regulation Authority (PRA) – part of the Bank of England, responsible for the safety and soundness of financial firms (Bank of England, 2024).

In addition, the Financial Policy Committee (FPC), also within the Bank of England, oversees systemic risk and macroprudential regulation.

The system operates under the Financial Services and Markets Act 2000 (as amended), and is guided by principles such as proportionality, transparency, and accountability (HM Treasury, 2023).

Positive Aspects of the UK Regulatory Framework

Strong Institutional Framework

The separation between the FCA and PRA allows for specialised focus. The FCA addresses conduct issues and consumer rights, while the PRA handles financial stability. This reduces conflicts of interest and allows for targeted supervision (Black, 2019).

Global Reputation

The UK’s regulatory system is respected internationally, attracting foreign investment and reinforcing London’s role as a global financial hub. The UK is a member of the Financial Stability Board (FSB) and aligns its rules with international standards, such as Basel III for banking regulation (FSB, 2023).

Adaptability and Innovation

The FCA’s “sandbox” initiative enables firms to test innovative financial products under regulatory oversight. This promotes fintech development while managing risk (FCA, 2023). It shows the UK’s ability to balance innovation and regulation effectively.

Consumer Protection

The FCA enforces strict conduct rules, ensuring fair treatment of consumers. It also operates a compensation scheme for failed firms, increasing public confidence in the financial system (FCA, 2024).

Negative Aspects and Criticisms

Complexity and Overlap

While the twin peaks model offers benefits, it can also cause duplication of efforts, bureaucratic delays, and confusion among firms. The split between the FCA and PRA sometimes leads to regulatory gaps or overlaps (House of Lords, 2022).

Regulatory Arbitrage Post-Brexit

Following Brexit, the UK no longer follows EU financial rules. While this offers regulatory flexibility, it also risks regulatory divergence and market uncertainty. Some firms have moved operations to EU jurisdictions to retain access to the single market (Moloney, 2021).

High Compliance Costs

The UK’s stringent regulations can impose significant costs, especially on smaller firms. Compliance with rules such as anti-money laundering (AML) and capital requirements can limit market entry and innovation (OECD, 2022).

Technological Risks and Regulation Lag

The rapid growth of cryptocurrencies and digital finance challenges regulators. The UK’s approach to crypto regulation has been criticised as slow and inconsistent, with calls for clearer guidelines (BBC, 2023).

Continued...