Financial Policy Committee (FPC)

The FPC is a statutory body of the Bank of England. It promotes the smooth operation of England’s financial system. Like other regulatory bodies, it preserves the system’s stability and aims to create an unfavorable environment for fraud and other crimes. Doing so protects consumer rights, commercial investments, and public economic interests in England.

History of the Financial Policy Committee

When the Financial Crisis of 2007 to 2008 struck England, it had no mechanisms to prevent or review the problem. Existing regulatory bodies examined different aspects of the system and did not always share data. Consequently, no agency noticed as risks developed, accumulated, and compounded until the crisis was already on Britain’s shores.

The Prudential Regulation Authority established the Financial Policy Committee in 2012 in response to the financial crisis. The FPC is one of several new statutory committees created by the Financial Services Act of 2012. These work together to thwart future economic problems and reduce their impacts.

Financial Policy Committee Members

The FPC typically has thirteen members. These include five external members chosen for outstanding professional experience and financial expertise. The members meet quarterly in March, June, September, and November. The FPC releases public records of these meetings that economists, investors, and other interested parties can review.

Here are some of the positions on this team of thirteen:

  • Governor, Bank of England
  • Deputy Governor, Prudential Regulation
  • Deputy Governor, Markets and Banking
  • Deputy Governor, Financial Stability
  • Deputy Governor, Monetary Policy
  • Executive Director, Financial Stability Strategy and Risk
  • HMT non-voting member

Purpose of the Financial Policy Committee

The FPC uses its powers and tools to identify, monitor, and take action to remove or reduce risks to the financial system. In doing so, it aims to strengthen the country’s ability to weather new financial crises caused by wars, public health crises and other risks. The FPC also supports the Prudential Regulation Authority’s objective to promote the safety and soundness of individual firms.

How the Financial Policy Committee Works

The FPC has a flexible approach to meeting its objectives. It has the authority to carry out the following actions:

  • Make recommendations to the PRA.
  • Issue directions to the PRA or Bank of England.
  • Impose restrictions on financial firms.
  • Create financial guidelines or regulations.

The FPC focuses most of its resources on commercial activity, such as monitoring the effects of Brexit on the UK economy. However, its actions directly affect consumers too. For example, it can set regulations determining the minimum requirements for securing a mortgage. Similarly, it can restrict banks from providing too many loans to borrowers with small down payments.

In addition, the FPC liaises with the PRA to conduct annual stress tests. The two organizations work together to design and administer these tests to top UK banks. It forces banks to determine how well they can handle hypothetical economic crises. Banks that fail may receive recommendations on changes they should make to improve their financial stability and long-term profitability.

Benefits of the Financial Policy Committee

The FPC benefits individuals, businesses, and the economy as a whole. These are some of the most important advantages to keep in mind:

  • Reduced financial crime: By reducing risks to the system, the FPC reduces the chances of financial crime. This maintains consumer confidence in the design and protects businesses from fraudulent activity.
  • Increased stability: The FPC’s actions promote a predictable financial system and maintain a steady trend. This reduces the likelihood of another economic crisis and makes it easier for businesses to plan for the future.
  • Protection for consumers: The FPC takes action to protect consumers from being taken advantage of by financial firms. For example, it can set regulations on mortgage lending to ensure that borrowers do not receive loans they cannot afford.
  • Improved transparency: The notes released to the public ensures that everyday people in the UK and the rest of the world can stay abreast of significant decisions affecting the British economy. This helps businesses plan well and inspires consumer confidence.

How LeapXpert Helps Financial Policy Committee Compliance

The FPC and other regulatory agencies review financial records when determining compliance and investigating risks. These include all data related to commercial activity or transactions, such as communication records. Failure to produce these records could lead to further investigations and fines.

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