The UK financial regulatory landscape is built around a twin-peaks model: two regulators with distinct mandates overseeing the same firms. For a capital markets bank operating in the UK, both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) are statutory supervisors, each with their own rules, supervisory expectations, enforcement powers, and fees. Understanding which regulator cares about what — and when the two interact — is foundational knowledge for anyone working in a regulated firm.

The Twin-Peaks Model

The twin-peaks architecture replaced the Financial Services Authority (FSA) in 2013. The FSA had been criticised for attempting to be all things to all firms — responsible simultaneously for financial soundness and consumer protection, market integrity and systemic risk — with the result that it was insufficiently focused on any of them. The post-crisis diagnosis was that prudential regulation (ensuring banks do not fail) and conduct regulation (ensuring banks treat customers and markets fairly) needed to be separated and given to distinct bodies with clear mandates and different supervisory cultures.

The PRA is a subsidiary of the Bank of England. It is responsible for the prudential supervision of banks, building societies, credit unions, insurers, and major investment firms. Its primary objective is to promote the safety and soundness of the firms it regulates, and its secondary objective (for insurers) is to contribute to policyholder protection. The PRA is specifically not a zero-failure regulator — it recognises that some firms will fail, and its job is to ensure that when they do, the failure is orderly and does not pose a systemic threat.

The FCA is an independent body that regulates the conduct of around 50,000 financial services firms. Its statutory objectives are to protect consumers, protect and enhance the integrity of the UK financial system, and promote effective competition in the interests of consumers. For capital markets, the FCA's market integrity mandate is paramount: it sets the rules on market abuse, transaction reporting, best execution, product governance, and the conduct of investment business.

What the PRA Regulates

For a capital markets bank, PRA supervision covers the firm's financial soundness — its capital adequacy, liquidity, leverage, and resolution planning. The PRA sets the firm's Pillar 2 capital requirement through the Supervisory Review and Evaluation Process (SREP), reviews the ICAAP and ILAAP, and assesses the quality of the firm's risk management, governance, and internal audit functions. The PRA also oversees the firm's operational resilience — its ability to withstand disruptions to critical business services — and its recovery and resolution planning under the Bank Recovery and Resolution Directive framework.

PRA supervisory engagement is deep and ongoing. A large bank will have a dedicated supervisory team — led by a Supervision Director — that meets with senior management multiple times a year, conducts thematic reviews, and has the right to require information, inspect documents, and interview individuals. The PRA can impose specific requirements on individual firms: higher capital buffers, restrictions on dividend distributions, requirements to remediate specific control weaknesses. In extremis, it can require a firm to remove senior managers or restrict particular activities.

The PRA also supervises the Senior Managers and Certification Regime (SMCR), which requires banks to identify individuals responsible for key functions, map their responsibilities clearly, and hold individuals accountable for failures within their area of responsibility. Senior Manager Function (SMF) holders require PRA approval before taking up their roles.

What the FCA Regulates

The FCA regulates the same firms from a conduct perspective. For a capital markets bank, FCA regulation covers: market conduct and abuse (through MAR and the Listing Rules), transaction reporting (MiFID II), best execution, product governance and distribution, client categorisation and suitability, remuneration (particularly the variable remuneration rules for material risk-takers), and the conduct of investment advice and portfolio management.

The FCA's primary tool is rule-making: it sets the detailed conduct rules that firms must follow. Its supervisory approach is more thematic than the PRA's — it tends to conduct sector-wide reviews of specific conduct issues (for example, a review of algorithmic trading controls across all MiFID II investment firms) rather than deep bilateral supervision of individual firms. However, for the largest capital markets firms, the FCA does maintain bilateral supervisory relationships.

The FCA has enforcement powers that are, in practice, used more extensively than the PRA's. FCA Final Notices — the published record of enforcement decisions — cover market abuse, transaction reporting failures, best execution failures, culture and governance failings, and a wide range of conduct breaches. FCA fines for capital markets conduct failures have run into the hundreds of millions of pounds for the largest institutions.

How the PRA and FCA Interact

The two regulators coordinate through a Memorandum of Understanding, through joint working groups, and through the Financial Policy Committee (FPC) of the Bank of England, which has a macroprudential mandate spanning both regulators. On issues that span both mandates — for example, SMCR (which has both conduct rules from the FCA and approval processes from the PRA), remuneration rules, or a firm-specific crisis — the two regulators collaborate closely. In practice, for any significant regulatory development, a dual-regulated firm must engage with both regulators and ensure that its compliance programme satisfies both sets of requirements.

The EU Architecture: ECB, EBA, ESMA

EU banks operating in the eurozone are subject to the Single Supervisory Mechanism (SSM), under which the European Central Bank (ECB) directly supervises significant institutions — those with total assets above €30 billion or that are systemically important in their home member state. For smaller institutions, the ECB oversees national competent authorities, which conduct day-to-day supervision. The European Banking Authority (EBA) sets the single rulebook — technical standards and guidelines that apply across all EU member states. The European Securities and Markets Authority (ESMA) plays the equivalent role for investment firm regulation, including MiFID II and EMIR.

The US Architecture: SEC and CFTC

In the US, market regulation is split between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The SEC regulates securities markets (equities, bonds, equity options) and their participants. The CFTC regulates derivatives markets — futures, options on futures, and most OTC swaps — and their intermediaries. The split creates jurisdictional complexity for cross-asset products: a bank dealing in equity swaps may need to register as both a broker-dealer with the SEC and a swap dealer with the CFTC.

Post-Brexit Divergence

Brexit ended the UK's participation in the EU single rulebook. UK rules — which were largely copy-outs of EU directives at the point of departure — are now being reviewed and, in some cases, materially amended by the PRA and FCA. The Edinburgh Reforms and the Smarter Regulatory Framework initiative signal the UK's intention to diverge from EU rules where it believes it can create a more competitive or better-calibrated regime. For firms operating in both markets, this divergence creates compliance complexity: the same product or activity may be subject to materially different rules on either side of the Channel, requiring separate compliance programmes, separate reporting infrastructure, and separate training.