Bank of England

UK and US Authorities Release Statement on Post-Brexit Continuity of Derivatives Trading and Clearing

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On February 25, the Bank of England (BoE), the Financial Conduct Authority (FCA) and the US Commodity Futures Trading Commission (CFTC) published a joint statement detailing the measures that will be taken to ensure the continuity of UK-US derivatives trading and clearing activities after Brexit.

The measures address:

UK equivalence for the US: UK authorities have confirmed that US trading venues, firms and central counterparties (CCPs) will be able to continue providing services in the UK. The basis on which these trading venues, firms and CCPs currently provide services in the EU and to EU firms is as a result of various decisions taken by the European Commission in declaring the CFTC regulatory framework equivalent.

Continued supervisory co-operation: The FCA and CFTC will update their memorandums of understanding (MoUs) covering certain firms in the derivatives and the alternative investment fund industry. The BoE and CFTC will update their MoU covering clearing activity, in connection with the UK’s forthcoming recognition of CFTC-registered CCPs.

Extension of existing CFTC relief and comparability for the UK: The CFTC intends that existing regulatory relief granted by the CFTC to EU firms, including UK firms, will be extended to UK firms when the UK leaves the EU.

EBA Releases Results of 2018 EU-Wide Stress Test

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A report was recently published by the European Banking Authority (“EBA“) setting out the results of its 2018 EU-wide banking stress test which covered a sample of 48 banks in 15 countries in the EU and the EEA at the highest level of consolidation, representing about 70% of total EU banks’ total assets.

An overview of the key aggregate results and a description of the main drivers of the capital impact is provided by the report. Annex II includes a bank-by-bank summary of the results, while banks’ individual results are accessible on the EBA’s website. READ MORE →

Bank of England Publishes Statement on Enforcement Action Against Lloyds Bank PLC and Bank of Scotland PLC

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On July 28, the Bank of England published a statement on Financial Conduct Authority enforcement action against Lloyds Bank PLC and Bank of Scotland PLC.  The statement notes that Lloyds Banking Group has paid the Bank of England £7.76 million as compensation for a reduction in fees received by the Bank of England as a result of the manipulation of submissions to the BBA GBP Repo Rate by Lloyds Bank PLC and Bank of Scotland PLC.  Statement.

Bank of England Launches New Framework to Test for Cyber Vulnerabilities

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On June 10, the Bank of England launched a new framework to help identify areas where the financial sector could be vulnerable to sophisticated cyber-attack. The new framework is called CBEST and was launched in May 2014.

CBEST uses intelligence from Government and accredited commercial providers to identify potential attackers to a particular financial institution.  It then replicates the techniques these potential attackers use in order to test the extent to which they may be successful in penetrating the defenses of the institution.  Participation will be voluntary, although it is expected that take-up will be significant.  Press Release.  

FCA and Bank of England Agree on Memorandum of Understanding

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The Financial Conduct Authority (FCA) and the Bank of England, including the Prudential Regulation Authority (PRA), have agreed on a Memorandum of Understanding (MoU) that sets out how they cooperate with one another in relation to the supervision of markets and market infrastructure, which includes financial markets infrastructures (FMIs).  The FCA and the Bank concluded that the MoU’s arrangements for cooperation over the first 11 months of the authorities’ new responsibilities have worked well.  The FCA and the Bank continue to refine their cooperative working arrangements and welcome the industry’s suggestions for some areas of consideration.  Memorandum of Understanding.

Bank of England Annual Report for 2013

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On June 4, the Bank of England (BoE) published its annual report for 2013.  The BoE’s priorities for 2013/14 relating to financial stability include:

  • Maintaining the stability and improving the resilience of the financial system by continuing to develop EU and UK resolution regimes through a bail-in tool and through financial institutions’ recovery and resolution plans.
  • Delivering macroprudential policy, through the Financial Policy Committee (FPC), which involves influencing the international framework for macroprudential regulation, including through the European Systemic Risk Board (ESRB).
  • Integrating microprudential supervision into the BoE.

Influencing and implementing policy to advance the objectives of the PRA.  Annual Report.

Resolving Financial Institutions – A Joint Paper by the FDIC and the Bank of England

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On December 10, the Bank of England (the Bank) and the Federal Deposit Insurance Corporation (the FDIC) published a joint paper entitled ‘Resolving Globally Active, Systemically Important, Financial Institutions’ (G-SIFIs).  The joint paper sets out the strategies that the Bank and the FDIC have designed to enable large and complex cross-border firms to be resolved without threatening financial stability or putting public funds at risk.  The paper builds on the work of the Financial Stability Board, and focuses on the application of “top-down” resolution strategies whereby a single resolution authority applies its powers at parent company level.

In the UK, this will involve the use of the powers under the Banking Act 2009 and those that are anticipated to be provided by the European Union Recovery and Resolution Directive and the Financial Services Bill, and will involve the bail-in (write-down or conversion) of creditors at the top of the group in order to restore the whole group to solvency.

The PRA’s Approach to Banking Supervision

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On October 15, the Bank of England and the FSA published a joint paper on how the UK’s new prudential regulator for deposit takers and investment firms, the Prudential Regulation Authority (the PRA), will operate, entitled “The PRA’s approach to banking supervision.”  The paper is designed to provide an overall description of the PRA and the approach it will take in relation to:

  •  its objective to promote the safety and soundness of firms primarily by seeking to avoid adverse effects on financial stability (the PRA acknowledges that, while firm failures will happen, it will seek to ensure that they are orderly);
  •  the new statutory threshold requirements for firms to be permitted to carry on regulated activities;
  • judgement based and forward looking supervision; and
  • working closely with both the FCA and the Financial Policy Committee, which will be able to make recommendations and give directions to the PRA.

The paper was accompanied by a speech by Andrew Bailey, Managing Director, Prudential Business Unit of the FSA, entitled “The future of banking regulation in the UK.”

Treasury Committee Publishes Report on the Financial Services Bill

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On 8 June, the Treasury Select Committee published a report setting out its main concerns on the Financial Services Bill. Report.

In particular, it called for amendments to the Bill which would:

  • Oblige the Court of the Bank of England to undertake retrospective reviews of the Bank of England’s performance;
  • Give a general power to the Chancellor of the Exchequer to direct the bank of England when public funds are at risk;
  • Make competition an objective of the Prudential Regulation Authority;
  • Ensure Parliament, through the Treasury Committee, may request retrospective reviews of the work of the Financial Conduct Authority’s (“FCA”).

It also considered whether the Treasury Committee should have a role in the appointment and dismissal of the Governor of the Bank of England and whether there is a way of requiring the FCA to publish board minutes. It welcomed the House of Lords to re-examine these issues. The second reading of the Bill in the House of Lords will take place on 11 June 2012.