BoE published the Record of the Financial Policy Committee (FPC), outlining the decisions taken since the May meeting. These decisions included setting of the UK Countercyclical Capital Buffer (CCyB) rate in the second quarter of 2020 and the postponement of certain planned initiatives in response to the ongoing disruption arising from COVID-19. In addition, FPC responded to the 2020 remit and recommendations letter from HM Treasury. The recommendations covered aspects that FPC should regard as relevant to its understanding of the financial stability objective of BoE and the responsibility of FPC in relation to the achievement of this objective.
The key decisions outlined in the Record include the following:
- FPC reaffirmed that it was important that banks should have clarity about the period of time it expected the CCyB rate to remain at 0%. It restated its previous judgment that it expected to maintain a UK CCyB rate of 0% until at least March 2021, absent any material change in the outlook. Due to the usual twelve-month implementation lag, any subsequent increase would not be expected to take effect until March 2022 at the earliest. As the outlook evolves, FPC would continue to closely monitor the credit conditions faced by UK households and businesses and stands ready to take further actions deemed appropriate to support UK financial stability.
- FPC, along with the Prudential Regulation Committee (PRC), decided to postpone any decision on an enduring approach for incorporating IFRS 9 into the capital framework. The Committees agreed that this would also allow them to reflect further feedback from stakeholders on the performance of the provisioning framework in the current stress and to work with colleagues internationally on an enduring treatment in light of it. This decision was based on decision of BCBS, in April 2020, to extend transitional measures for implementation of IFRS 9.
- FPC had agreed in December 2019 that it would return to risks from the provision of cloud services to the UK financial sector in 2020. Given how the risks had evolved since the last discussion of FPC, and to focus on dealing with the COVID-19 disruption, FPC has agreed to return to risks from the provision of cloud services in 2021. Staff would continue to monitor the migration of services to the cloud and would bring this issue back to FPC sooner if warranted by developments.
FPC also received a written update on the progress of LIBOR transition. FPC welcomed the announcement that the UK government intends to amend the existing framework for critical benchmarks in advance of the end of 2021 to give FCA enhanced powers. Additionally, the response letter to HM Treasury mentions that, while recognizing current pressures on firms and considering the responses to the December 2019 Discussion Paper on the climate biennial exploratory scenario, PRC and FPC have agreed to postpone the launch of the climate biennial exploratory scenario exercise until at least mid-2021. This delay reflects a desire to maintain the ambitious scope of the exercise, while giving firms enough time to invest sufficiently in their capabilities to allow them to deliver to a high standard. The next policy meeting of FPC will be on July 29, 2020 and the Record of that meeting will be published on August 06, 2020.
Keywords: Europe, UK, Banking, Securities, CCyB, IFRS 9, COVID-19, Regulatory Capital, LIBOR, Interest Rate Benchmarks, FPC, Climate Change Risk, ESG, FCA, PRA, BoE
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