On 11 March 2020, the Bank of England’s (BoE) Financial Policy Committee (FPC) made a decision to set the UK countercyclical capital buffer rate at 0% with immediate effect. The FPC expects to maintain the 0% rate for at least 12 months, so that any subsequent increase would not take effect until March 2022 at the earliest.
Following the FPC decision the PRA has made a statement covering both:
- distributions; and
- transitional measures on technical provisions relief for insurers.
When discussing distributions the PRA states that it expects firms not to increase dividends and other distributions in response to this policy action and will monitor firms’ distributions against this expectation. The PRA expects boards of PRA-regulated firms to consider this when deciding distributions.
The PRA may engage with relevant senior managers and/or check written records, such as relevant board minutes, to assess whether any relevant decisions were subject to an appropriate level of discussion, documentation and oversight.
The PRA requests that firms note the following when considering whether to use their capital buffers:
- use of the PRA buffer or CRD IV combined buffer is not a breach of capital requirements or threshold conditions;
- the PRA buffer is confidential and the automatic distribution restrictions associated with the CRD IV combined buffer do not apply to it; and
- automatic distribution restrictions resulting from use of the CRD IV combined buffer are a capital conservation measure. Such restrictions are consistent with the overarching aim of these buffers, which is to enable banks to continue to support the real economy and avoid amplifying a system-wide stress.
The transcript of the press conference on the BoE measures to deal with COVID-19 can be found here.