Financial Policy Committee (FPC)

Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 Published

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On January 13, 2015, the Capital Requirements (Capital Buffers and Macro-prudential Measures) (Amendment) Regulations 2015 were published.

The Regulations amend the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 to introduce a systemic risk buffer (SRB) that will apply to ring-fenced banks (RFBs) and certain large building societies. This measure implements Articles 133 and 134 of the Capital Requirements Directive IV (CRD IV).

The Financial Policy Committee (FPC) will be responsible for setting out the framework for determining which institutions should hold the buffer and, if so, how large the buffer should be. It will need to publish this methodology by May 31, 2016. The Prudential Regulation Authority (PRA) will be responsible for applying the framework and will have ultimate discretion over which firms must hold the buffer and its size.

The Regulations were made on January 12, 2015 and come into force, unless otherwise stated, on May 31, 2016. The systemic risk buffer is applicable from January 1, 2019.  Regulations.

HM Treasury Consultation Paper on the Macroprudential Directive Tools of the FPC

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HM Treasury has published a consultation paper on the tools available to the Financial Policy Committee (FPC) to address systemic risks to the stability of the financial system entitled ‘The Financial Services Bill: the Financial Policy Committee’s macro-prudential tools’ (the “Consultation Paper”).

The Financial Service Bill provides the FPC with two primary powers.  The first of these is the power to make recommendations (which can be made on a comply-or-explain basis) to the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA), the Treasury and the Bank of England.  The second is the power to direct the PRA and FCA to take action, and the tools that the PRA should have under this power (the “directive tools”) are the subject of the Consultation Paper.

In December 2011, the Bank of England published a discussion paper entitled ‘Instruments of Macroprudential Policy’.  The Consultation Paper builds on the responses to the discussion paper and proposes directive tools that the FPC should have, including:

  • o    control over the level of the UK’s counter-cyclical capital buffer;
  • o    a direction-making power to impose sectoral capital requirements; and
  • o    once international standards are in place, the power to set, and vary over time, a leverage ratio cap.

HM Treasury invites responses to its Consultation Paper by December 11.