General Information & Client Services
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
February 14, 2018

IMF issued staff report and selected issues report in the context of the 2017 Article IV consultation with the United Kingdom (UK). Directors welcomed the recent progress in negotiating the departure of the UK from EU, which allowed discussion to move to issues related to a transition period and the framework for the future relationship. Directors commended the authorities for proactively helping financial institutions to prepare for the exit, given the uncertainties about the future of financial service arrangements with the EU. They called on all involved parties to work together to mitigate transition risks related to changes in regulatory regimes and responsibilities.

The staff report highlights that the major UK banks are well-capitalized and satisfy the Basel III liquidity coverage ratio and net stable funding ratio requirements. However, strong regulatory capital ratios benefited from declining risk-weights on mortgages and consumer loans, partly reflecting benign cyclical conditions and declining nonperforming loans. The 2017 annual stress test of BoE suggests that the UK banking system is resilient to deep simultaneous recessions in the UK and global economies, large falls in asset prices, and a separate stress of misconduct costs. Moreover, strengthening of the bank resolution framework is on track: large core retail banking operations will be ring fenced by 2019 while banks are raising their total loss-absorbing capacity and satisfying resolution planning requirements. Adopting the Basel III final agreement in due time would help reduce excess variability in risk-weights across banks using internal models.

The staff report notes that the Executive Directors encouraged the authorities to maintain robust prudential and supervisory standards and to continue monitoring consumer credit and bank risk-weights. The countercyclical capital buffer (CCyB) was lowered to prevent a tightening of credit conditions. BoE increased the CCyB to 1% in November 2017, reflecting its assessment that—excluding the impact of Brexit—the risk environment is close to a standard level. Any relaxation of the CCyB would need to maintain confidence in the financial system and ensure an appropriate degree of resilience against future shocks.CCyB rate should be kept under review to ensure it continues to evolve in line with the overall risk level. The authorities should consider conducting a system-wide liquidity stress test of the major UK banks in a future biennial exploratory scenario. Stable liquidity conditions are important for the smooth functioning of capital markets. Following the recommendations of the 2016 FSAP, BoE is developing a financial-system-wide simulation to model the dynamic interaction of insurers, funds, and dealers under stress. 

The staff report also emphasizes the major Brexit-related challenges to the UK financial sector. The 2017 annual cyclical stress test of BoE suggests that the major UK banks are sufficiently well-capitalized to withstand a disorderly Brexit. However, even an orderly Brexit could pose significant business continuity challenges. Financial institutions have been asked to develop comprehensive contingency plans in consultation with BoE. Based on a review of these plans, the authorities have identified two key issues that would be difficult for financial firms to address unilaterally and could best be handled through bilateral agreements between the UK and EU. These include the continuity of outstanding cross-border over-the-counter derivative and insurance contracts and the continued cross-border sharing of personal data within institutions. Regulation and oversight arrangements for euro denominated derivatives clearing on UK-based central counterparties will require careful design. The report states that a broad agreement on the new economic relationship with the EU must be achieved by March 2019. The selected issues report examines the key factors behind the slowdown of the wage growth and the regional disparities in labor productivity in the United Kingdom.

 

Related Links

Keywords: Europe, UK, Banking, Insurance, Securities, Basel III, CCyB, CCP, FSAP, Article IV, IMF

Related Insights
News

FSB Publishes the G-SIB List for 2018

FSB published the 2018 list of global systemically important banks (G-SIBs) using end-2017 data and an assessment methodology designed by BCBS.

November 16, 2018 WebPage Regulatory News
News

BCBS Publishes Additional Information on the 2018 G-SIB Assessment

BCBS published further information related to the 2018 assessment of global systemically important banks (G-SIBs), including additional details to help understand the scoring methodology.

November 16, 2018 WebPage Regulatory News
News

CBB Proposes and Finalizes Rulebook Modules for Banks in November 2018

CBB announced the issuance of new leverage ratio requirements under Module CA (Part 3) for Islamic (Chapter CA-10) and conventional bank licensees (Chapter CA-15).

November 15, 2018 WebPage Regulatory News
News

OFR on Financial Stability Risks in Its 2018 Annual Report to Congress

OFR released its 2018 Annual Report to Congress, which examines risks to the financial stability in the United States.

November 15, 2018 WebPage Regulatory News
News

SRB Sets Expectations on Resolvability of Banks in Context of Brexit

SRB published a position paper that presents its expectations about ensuring resolvability of banks in the context of Brexit.

November 15, 2018 WebPage Regulatory News
News

PRA Publishes Final Policy on Capital Framework for Securitization

PRA published the policy statement PS29/18, which provides feedback to responses to the consultation paper CP12/18 on the new EU framework and significant risk transfer for securitization.

November 15, 2018 WebPage Regulatory News
News

IAIS Publishes Drafts of Revised ICP 8, ICP 15, ICP 16, and ICP 20

IAIS published the drafts of revised Insurance Core Principles on Public Disclosure (ICP 20), Investments (ICP 15), Enterprise Risk Management for Solvency Purposes (ICP 16), and Risk Management and Internal Controls (ICP 8), along with a revised draft of the glossary on enterprise risk management (ERM).

November 14, 2018 WebPage Regulatory News
News

PRA Updates Final Policy and Reporting Form for Leverage Ratio in UK

PRA published the Policy Statement PS28/18, which provides feedback to responses to the consultation paper CP14/18 titled "UK leverage ratio: Applying the framework to systemic ring-fenced bodies and reflecting the systemic risk buffer."

November 14, 2018 WebPage Regulatory News
News

IASB Could Extend Effective Date for IFRS 17 and IFRS 9 for Insurers

IASB has voted to propose a one-year deferral—to 2022—of the effective date for the new insurance contracts standard IFRS 17. IASB also decided to propose extending to 2022 the temporary exemption for insurers to apply the financial instruments standard IFRS 9.

November 14, 2018 WebPage Regulatory News
News

MAS Amends Notice 637 on Capital Adequacy Requirements in Singapore

MAS published the final, revised Notice 637 on the risk-based capital adequacy requirements in Singapore.

November 13, 2018 WebPage Regulatory News
RESULTS 1 - 10 OF 2219