Financial Services Bill: the Financial Policy Committee’s macro-prudential tools

Establishing the Financial Policy Committee’s (FPC) within the Bank of England as a macro-prudential authority is a key element of the Government’s reforms to the UK’s system of financial regulation, which will be enacted by the Financial Services Bill.

In order to address systemic risks to the UK financial system, the FPC will have broad powers of recommendation and a power to issue directions to the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), using macro-prudential tools set out by the Treasury in secondary legislation.

This document seeks comments on the Government’s intention to:

• make the FPC responsible for setting the level of the UK’s counter-cyclical capital buffer
• provide the FPC with a direction-making power to impose sectoral capital requirements
• provide the FPC with a time-varying leverage ratio direction-making tool, but no earlier than 2018 and subject to a review in 2017 to assess progress on international standards

The document contains draft secondary legislation that will provide the FPC with its directive tools, and an Impact Assessment that contains illustrative estimates of the net benefits of the FPC’s macro-prudential tools.