Industrial benchmarks and standards in a very basic sense lay down the structure for operations, practices and limitations that an organisation must follow to ensure fair treatment with the customers. Regulatory compliance ensures that the organisations working in any domain are conducting business fairly and ethically. Same goes with the banking domain in United Kingdom where regulatory bodies and compliance structure ensures that the financial institutions are operating in compliance with the standards and norms. This helps the customers in getting fair and transparent services.
It is extremely important for not just customers but the society that the organizations managing funds in any form are regulated. There has to be a framework which these organisations must comply to in order to maintain trust and security among the customers. Every country has regulatory bodies to ensure that the regulations are followed.
Regulatory Bodies
Financial Conduct Authority (FCA): As the name implies it oversees and regulates the financial firms conduct of operations to ensure customer protection in the United Kingdom. Retail banking activities like lending, payment services, management of savings bank accounts and insurance services etc. are covered under the spectrum of this regulatory body.
Prudential Regulation Authority (PRA): Organisations which are responsible for handling money must be regulated by a centralized authority and that is where Prudential Regulation Authority comes into the picture. It is responsible to ensure safety and sustainability of financial institutions by setting a framework for capital requirements, doing stress test and supervising risk management practices. It sets regulations for supervision of banks, insurance providers, credit unions and major investment firms.
Bank of England: Being the central bank of the nation Bank of England ensures financial stability by planning monetary policies, calculating base rates for various lending products and mitigating risks within the banking system by controlling various parameters that effect financial landscape in United Kingdom. To effectively apply these policies and strategies it works closely with FCA and PRA explained above to maintain financial stability for the nation.
The regulations set by the regulatory authorities provides a structured framework in which the financial organisations work. Let us get our basic understanding of some crucially important regulations.
Key Regulations:
Consumer Credit Act 1974: If we observe the process of lending, we can easily find out that most people while taking credit do not read the terms and conditions of the agreement carefully. There should be a regulation to protect people from the unjust lending practices which provides the customers to cancel the agreement if they feel it is not something they are comfortable with. Customers must have the right to know the entire details of their lending agreement as only then it would be fair for the customer to decide whether to take credit or not. And that is exactly what consumer credit act regulates by providing a transparent framework for lending activities.
Payment Services Regulations 2017: The Payment Services Regulations paved the way for new players in the payment service market which has provided more choices for the customers to select better and innovative payment services. It has led to better data protection for customers along with the enforcing regulatory obligations enhancing transparency and accountability promoting consumer protection.
Open Banking Regulations: Open banking regulations have enabled banks with a secured way of sharing consumer data with authorized third-party fin-tech service providers. This reform has led the innovative collaboration between banks and fin- tech firms resulting in better services for the customers like account aggregation, advanced budgeting applications, and artificial intelligence enabled personal recommendations for the best suited financial product for the customers.
Impact on Banks and Consumers:
Compliance Costs:
Making sure that an organization is compliant with the regulations in the working domain requires a significant amount of money. Financial institutions do bear many kinds of costs in meeting the compliance requirements such as cost of setting up systems to monitor compliance of various business processes, cost of human resources involved in compliance operations, cost of tools used for analysis and reporting. If these organisations fail to manage these compliances, then they have to pay huge penalties and fines which is much greater than these costs.
Consumer Protection:
When regulations are enforced properly in any domain the end user in that domain is actually the one that benefits the most out of these regulations. It is simply because regulations safeguard the customers from unjust practices, deceptive terms etc. In banking domain as public money is on the line and banks or other financial institutions are lending money to the customers at interest it becomes really important to regulate the practices of these firms or banks so that the customer is getting fair and transparent service. In addition to the fairness of the services these regulations do ensure that the customers are getting crystal clear and accurate information about the financial service they are getting.
Market Competition:
Making standard and common regulations in the banking domain provides an operating framework which promotes competition by providing the common ground to operate for banks and other financial institutions. And in a competitive environment the businesses do evolve and everyone benefits especially the customer as the customer is getting more choices for the financial services, variety of services as the competitors do try to give the best services possible to increase their market share and in addition to these benefits the customers do get the innovative products as each competitor will come up with new innovations to try to disrupt the market.
Regulatory Data:
Number of Regulatory Actions: Data regarding the regulatory actions against the financial organisations is released periodically and publicly by FCA. A total fine of £ 785.6 million has been charged fines for misconduct, non-compliance and consumer harm in the year 2021.
Consumer Complaints: The job of receiving and resolving complaints against the financial organisations is done by Financial Ombudsman Services also known as FOS. A staggering number of 28,033 complaints were registered related to banking services and credit and 29 percent of those went in favour of the customers in the year 2021.
