The Financial Services Authority (FSA) was the United Kingdom’s main financial services regulator from 2001 until 2013. It supervised a wide range of financial firms and market activity, and after the 2007-2008 financial crisis its responsibilities were split between the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), with the Financial Policy Committee (FPC) taking a macroprudential role.
Why Financial Regulators Exist (Economics View)
Financial regulation is usually justified by market failures:
- Information asymmetry: consumers and investors cannot easily evaluate product risk, firm solvency, or sales practices.
- Externalities and systemic risk: one institution’s failure can spill over to others through runs, fire sales, and payment-system disruption.
- Agency problems: incentives inside firms can lead to excessive risk-taking when gains are private but losses are shared (for example, via deposit insurance or bailouts).
The economic goal is not “more rules,” but better incentives: reduce hidden risk, align behavior with consumer protection, and limit systemic spillovers.
What Changed After 2013 (The “Twin Peaks” Split)
Post-crisis reforms separated regulation into more focused mandates:
- Conduct regulation (FCA): how firms treat customers and how markets function (disclosure, sales practices, market integrity).
- Prudential regulation (PRA): safety and soundness of systemically important firms (capital, liquidity, risk management).
- Macroprudential oversight (FPC): system-wide risk build-ups (credit booms, leverage, interconnectedness).
This split reflects an economic distinction between:
- Microprudential risks (a single firm fails) and
- Macroprudential risks (the system becomes fragile and failures propagate).
Related Terms
- Financial Conduct Authority
- Prudential Regulation Authority
- Bank of England
- Financial Policy Committee
- Systemic Risk
- Consumer Protection
- Bank Regulation
- Financial Deregulation
- Deregulation
- Regulation