The PRA and the FCA have separately published statements of policy on their respective approaches to investigating and reporting on regulatory failure, as required by the Financial Services Act 2012. These statements describe how the regulators will meet the new statutory requirements to investigate possible instances of their own regulatory failure and provide reports to HM Treasury for publication.

To determine whether the conditions for an investigation into regulatory failure have been met, the PRA must assess whether:

• relevant public expenditure, significant adverse effects on safety or soundness, or significant failure to secure an appropriate degree of policyholder protection have occurred; and
• those events were the result of a possible serious failure of the regulatory system or its operation.

The statutory criteria for the FCA to investigate a potential regulatory failure are:

• there is a significant failure to either secure an appropriate degree of protection for consumers; or a failure that had, or could have had, a significant adverse effect on the integrity of the UK financial system or on effective competition in the interests of consumers; and
• the events occurred, or where made worse, because of a serious failure of the regulatory system or by a failure of the FCA.

The FCA statement of policy indicates how these criteria will be assessed and the obligation to investigate met. The FCA has stated that a formal statutory investigation and report for HM Treasury is expected to occur in only exceptional cases.

www.bankofengland.co.uk/pra/Pages/publications/conductstatinvestigations.aspx
http://www.fca.org.uk/static/fca/documents/how-fca-will-investigate-and-report-regulatory-failure.pdf
http://www.fca.org.uk/news/press-releases/fca-publishes-its-approach-to-regulatory-failure