The Governance Framework for Banks in the UK

Abstract

This paper discusses the regulatory and corporate governance framework for banks in the United Kingdom (UK). Prior to the 2008 Global Financial Crisis (GFC), there was a ‘tripartite’ regulatory system involved in the regulation and management of the financial system in the UK. This system failed during the GFC to take proactive steps to mitigate or avoid risks that threatened the stability of the UK financial system. It was clear that the GFC existing regulatory systems and Codes of Corporate Governance did not protect against bank failure. As a result, the UK government restructured the UK financial regulation system. The new UK regulatory system under the Bank of England has been adopted with the establishment of the Financial Policy Committee (FPC), the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA). The new provisions set in place legislative measures to ensure that there is a free flow of information between the two new regulatory bodies with PRA having broad responsibility for macro measures and the FCA for micro management of financial products and consumers’ rights. In recognition of the special risks of bank failure, the legislation also establishes a separate Bank of England committee, the FPC to make recommendations relating to the stability of banks.