The Financial Policy Committee (FPC) of BoE met recently to identify risks to financial stability and agree on policy actions to safeguard the resilience of the UK financial system. As per the published meeting summary, FPC decided that it expects to maintain the UK countercyclical capital buffer (CCyB) rate at 0% until at least December 2021. Any subsequent increase would not be expected to take effect until the end of 2022. The pace of return to a standard UK CCyB rate in the region of 2% would depend on banks’ ability to rebuild capital while continuing to support the UK economy, households, and businesses. FPC judged that this guidance should help to give banks clarity that they could use capital buffers as necessary. Other topics of discussion at the meeting included the status of LIBOR transition, continued monitoring of financial stability implications of Brexit, results of joint BoE-FCA review of open-ended investment funds, and the next cyber stress testing exercise.
The work on the next cyber stress test has already restarted and FPC would provide more information on the 2022 cyber stress test in due course. At the March 2021 meeting, FPC discussed its impact tolerance for payments services and initial plans for a 2022 stress test. FPC agreed that the 2022 cyber test should involve a scenario where data integrity had been compromised. This would build on the finance industry’s own work. FPC agreed that the 2022 test should target the most systemic contributors in the end-to-end payments chain, as in the event of disruption, their ability to resume services in a timely manner was particularly important for UK financial stability. FPC further agreed to focus the next cyber stress test on retail payments, so that the results from the test could help shed light on the potential financial stability impact of disruption to retail payments. Building on the lessons of the 2019 pilot, the 2022 test would be expanded to include second-round effects. Participants would be asked to document how they would meet the FPC’s impact tolerance, or, if they were not able to do so, what the impact might be. Firms would also be asked to document any barriers to meeting the FPC’s impact tolerance and to explore the extent to which their recovery options might depend on the actions of other participants. Finally, FPC agreed that the 2022 test would be an exploratory test, rather than a formal pass-fail assessment. Participating firms would, however, be expected to share their findings and plans with their supervisors.
Keywords: Europe, UK, Banking, Basel, Regulatory Capital, CCyB, COVID-19, Cyber Risk, Stress Testing, Data Integrity, IBOR Reform, Financial Stability, FPC, BoE
Previous ArticleAPRA Issues Update on New Data Collection System APRA Connect
The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.
The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.