6.1 FCA and PRA: Statutory and Operational Objectives

The UK's twin-peaks regulatory architecture, established by the Financial Services Act 2012 and effective from 1 April 2013, separates conduct regulation from prudential regulation. The Financial Conduct Authority (FCA) supervises conduct, consumer protection, and market integrity across some 50,000 authorised firms, while the Prudential Regulation Authority (PRA), an operating arm of the Bank of England, supervises around 1,500 banks, building societies, credit unions, insurers and major investment firms for financial soundness. Each regulator pursues statutory objectives set by Parliament in the Financial Services and Markets Act 2000 (FSMA), as amended.

FCA's Statutory Objectives

Section 1B FSMA gives the FCA three operational objectives that frame every rule, supervisory intervention and enforcement action it takes.

The competition objective is what makes the FCA different from earlier conduct regulators — it must consider whether markets work well for consumers, not just whether individual firms misbehave. The Financial Services and Markets Act 2023 added a secondary objective: in advancing its objectives, the FCA must (so far as compatible with acting in a way reasonably considered appropriate) facilitate international competitiveness and growth of the UK economy in the medium to long term, subject to alignment with relevant international standards. This does not override the operational objectives but informs how the FCA designs rules.

How the FCA Advances Its Objectives

• Authorisation gatekeeping — only fit and proper firms with adequate resources and competence may carry on regulated activities
• Supervision — proactive monitoring of firms against the Threshold Conditions and Handbook rules
• Enforcement — fines, restitution, injunctions and criminal prosecutions for misconduct
• Rule-making — issuing principles, conduct rules and prudential standards (for solo-regulated firms)
• Market studies — using competition powers to refer markets to the Competition and Markets Authority (CMA)
• Consumer Duty — PRIN 12 (live 31 July 2023) embeds an outcomes-based duty on firms to deliver good outcomes for retail customers

PRA's Statutory Objectives

Section 2B FSMA sets the PRA's objectives. They differ from the FCA's because prudential supervision is about preventing firm failure from harming the financial system.

The PRA advances safety and soundness primarily by seeking to ensure that the business of firms is carried on in a way that avoids adverse effects on financial stability, and by minimising the adverse effect of a firm's failure should one occur. Its forward-looking, judgement-based supervisory approach focuses on the firms and risks that pose the greatest threat to stability.

How the Twin-Peaks Structure Facilitates the Objectives

The structure deliberately separates "are firms safe?" (PRA) from "are firms behaving well?" (FCA), with each regulator operating alongside the other.

Key Structural Features

• Financial Policy Committee (FPC) — the macro-prudential body at the Bank of England that identifies systemic risks and can direct the FCA and PRA to act (FSMA Pt 1A)
• Memorandum of Understanding — the FCA and PRA must coordinate on concurrently regulated firms (typically large banks and insurers), with information-sharing and consultation duties
• PRA Board — accountable to the Court of the Bank of England; the FCA Board is accountable to HM Treasury and Parliament
• Accountability mechanisms — both regulators must publish annual reports, business plans and corporate strategies; the FCA must respond to recommendations from the Treasury Select Committee
• Statutory consultation duties — both regulators must consult each other and the FPC on rules that fall within concurrent responsibilities

Why the Separation Matters

Before 2013, the Financial Services Authority (FSA) combined both functions, and the 2007-09 financial crisis exposed the risk that conduct supervision could be crowded out by prudential fire-fighting. Splitting the roles means each regulator has a single, focused mandate, with separate boards, separate rulebooks (the PRA Rulebook vs the FCA Handbook), and separate supervisory cultures.

Operational Objectives Within Authorised Firms

The FCA's and PRA's external objectives cascade into internal operational objectives for authorised firms. Firms must put in place systems and controls that deliver the regulators' outcomes, including:

• Continuing Professional Development (CPD) for all staff who give regulated advice or deal with clients, mandated by the Training and Competence (T&C) sourcebook
• Adequate capital and liquidity (prudential objective) maintained at all times
• Governance arrangements under SYSC that allocate clear responsibilities to senior managers
• Risk management and compliance monitoring that evidences good consumer outcomes

Why This Matters for CeMAP

For mortgage advisers and other retail investment advisers, the FCA's consumer protection objective is the dominant driver of conduct rules. The suitability and affordability requirements in MCOB, the disclosure rules in COBS, and the Consumer Duty all exist to advance consumer protection. The PRA's safety and soundness objective is more remote to retail advice but matters when a firm fails — the Financial Services Compensation Scheme (FSCS) pays out £120,000 per eligible depositor per authorised firm (from 1 December 2025) when a bank fails because of prudential breakdown.

Key Takeaways

• The FCA's three operational objectives under s.1B FSMA are consumer protection, market integrity and competition
• The PRA's primary objectives are safety and soundness and policyholder protection
• FSMA 2023 added secondary competitiveness and growth objectives to both regulators
• The FPC provides macro-prudential oversight from the Bank of England
• Firms cascade external objectives into internal operational objectives including CPD, capital adequacy, governance and compliance