Certified Financial Management Specialist Practice Exam

Which agency oversees the safety of financial institutions in the UK?

1. Financial Conduct Authority

2. Prudential Regulation Authority

3. Bank of England

4. Financial Ombudsman Service

The correct answer is: Prudential Regulation Authority

The Prudential Regulation Authority (PRA) is responsible for overseeing the safety and soundness of financial institutions in the UK. As part of the Bank of England, the PRA plays a vital role in maintaining the stability of the financial system by ensuring that banks, insurers, and investment firms operate in a safe and resilient manner. This includes establishing regulatory standards for capital and risk management to ensure that these institutions can withstand financial shocks. The distinct focus of the PRA is on the prudential regulation of individual firms, assessing their financial health and their ability to continue operations in a stable manner. This is crucial for protecting depositors and maintaining public confidence in the financial system. Other options might have roles in regulation or consumer protection, but they do not primarily handle the overall safety of financial institutions. For example, the Financial Conduct Authority (FCA) is tasked with overseeing conduct and ensuring that consumers are treated fairly rather than focusing specifically on institutional safety. The Bank of England serves a broader function, including monetary policy, while the Financial Ombudsman Service is dedicated to resolving disputes between consumers and financial service providers rather than direct oversight. This delineation clearly positions the Prudential Regulation Authority as the correct agency for overseeing the safety of financial institutions in the UK.