On 16 February 2024, the Bank of England (BoE) published a Policy Statement providing feedback on responses to an earlier Consultation Paper on the BoE’s proposed approach to its power to temporarily restrict or prohibit discretionary payments to employees or shareholders of recognised UK central counterparties (CCPs). The BoE’s final Statement of Policy on its approach to the power to temporarily prohibit or restrict discretionary payments is available in the Annex. As such, feedback to the Consultation Paper is in the Policy Statement.

Background

Schedule 11 of the Financial Services and Markets Act 2023 (FSMA 2023) makes provision for a special resolution regime for CCPs and grants the BoE additional powers that support its financial stability objective. This includes the power to temporarily restrict or prohibit discretionary payments to employees and/or shareholders of CCPs in severe circumstances to ensure the continuity of critical clearing services. FSMA 2023 requires the BoE to publish a Statement of Policy with respect to giving directions under this power.

Summary of responses

The BoE received two responses to its consultation: one from a CCP and one jointly from two trade associations. Respondents were generally supportive of the proposals and welcomed the detail provided by the BoE, including the BoE’s consideration of maintaining public confidence in the UK financial system as part of the public interest condition. Some responses also requested additional information, which was mainly around the scope and duration of the power.

Summary of changes to the final policy text

The BoE only made minor changes to the Statement of Policy when compared to the draft consulted on. They are summarised as follows:

  1. The BoE clarified that five years is the maximum duration of the power, not the minimum, and that the power is to be used in severe circumstances only, as opposed to being part of the BoE’s business-as-usual supervisory response.
  2. The BoE explicitly brought out consideration of the impact of exercising the power on a CCP’s ability to hire and retain key staff needed to ensure the continuity of critical services in the Statement of Policy. This had been previously discussed in the Consultation Paper.

Next steps

The Statement of Policy entered into force on 16 February 2024. The BoE is able to use the power from this date.