On 14 June 2021, there was published on the legislation.gov.uk website a draft of The Bank of England Act 1998 (Macro-prudential Measures) (Amendment) Order 2021.
When finalised the draft Order makes amendments to the following Orders dealing with macro-prudential measures:
- The Bank of England Act 1998 (Macro-prudential Measures) Order 2013/644.
- The Bank of England Act 1998 (Macro-prudential Measures) (No.2) Order 2015/905.
- The Bank of England Act 1998 (Macro-prudential Measures) Order 2015/909.
- The Bank of England Act 1998 (Macro-prudential Measures) Order 2016/1240.
The above Orders give the Financial Policy Committee (FPC) powers to direct the PRA and the FCA to take action with respect to specified macro-prudential measures. The intention behind the latest draft Order is to ensure that the above Orders appropriately track the PRA’s new powers that are being introduced under the Financial Services Act 2021 (the Act).
The Financial Services Act 2021 provides powers for the PRA to make rules which apply to holding companies for the purposes of the Capital Requirements Regulation and the Capital Requirements Directive IV, including sub-consolidated and consolidated prudential requirements and rules regarding matters such as governance and group-risk. This power is designed to ensure the holding companies’ provisions, which have been introduced through the transposition of the Capital Requirements Directive V (CRDV), can be maintained effectively over time, including for the purpose of the implementation of standards recommended by the Basel Committee on Banking Supervision and ensures the application of the accountability framework contained in the Act wherever this power is exercised.
Schedule 3 to the Act also provides for the FPC to make directions or recommendations that relate to holding companies, ensuring a coherent regime under which holding companies become responsible for meeting consolidated and sub-consolidated requirements.
To fully implement these changes some of the above Orders need to be amended so that the measures are capable of being applied to such holding companies. This instrument therefore amends the Orders covering the FPC’s powers over sectoral capital requirements and the leverage ratio so that the FPC can direct the PRA to implement those measures with respect to certain holding companies. This ensures the scope of the FPC’s powers appropriately tracks changes to the PRA’s powers in respect of holding companies introduced by the Act.