The Financial Policy Committee (FPC) was created by the Financial Services Act 2012. The FPC has two main powers. The first is a power to make recommendations which can be made to anyone. The FPC has a special power to make recommendations on a comply or explain basis to the PRA and FCA. The second is a power to direct the regulators to adjust specific macro-prudential tools. The FPC has been given a direction tool over sectoral capital requirements (SCRs). In addition the Government has proposed making the FPC responsible for decisions on the countercyclical capital buffer (CCB) applied to certain financial institutions in the UK. These tools are primarily intended to tackle cyclical risks, such as those arising from unsustainable levels of leverage, debt or credit growth.
There is a statutory requirement for the FPC to prepare and maintain a general statement of policy for all the direction powers that it is given. The Bank of England has now published a Policy Statement concerning the FPC’s powers concerning SCRs and CCB.
The Policy Statement covers the following:
- section 2 describes the SCR and CCB tools, including who they apply to, how they fit in with the existing regulatory framework, how decisions will be co-ordinated with overseas regulators and how decisions will be communicated and enforced;
- section 3 sets out the FPC’s current assessment of how these tools will affect the resilience of the financial system and growth; and
- section 4 explains the circumstances in which the FPC might expect to adjust the setting of each tool and provides a list of core indicators that the FPC will routinely review when reaching decisions.