UK: FPC power to supplement capital requirements - draft policy statement published

Section 4 of the Financial Services Act 2012 inserts new Part 1A into the Bank of England Act 1998. Amongst the new provisions are those concerning the Financial Policy Committee, its composition, objectives and powers. The FPC will have the power to give directions to the Financial Conduct Authority and Prudential Regulation Authority requiring them to exercise their functions to ensure the implementation by a specific class of regulated person of macro-prudential measures (see section 9H). Section 9M requires the FPC, in respect of each macro-prudential measure, to prepare and maintain a written statement of the general policy that it proposes to follow in relation to the exercise of its power to give directions under section 9H. In this regard, the interim Financial Policy Committee yesterday published a draft policy statement concerning the power that the FPC will have under the new financial regulatory framework to supplement banks' capital requirements through the use of counter cyclical buffers (CCB) and sectoral capital requirements (SCR): see here (pdf). The paper describes the purpose of the CCB and SCR tools, their fit within the regulatory framework, to whom they will apply and when.