The Financial Policy Committee's powers to supplement capital requirements

August 2014
The Bank of England

In June 2010, the Chancellor of the Exchequer set out a plan for fundamental changes to the system of UK financial regulation. In July 2010 and February 2011, the Government published consultation documents on the proposed changes, and in January 2012 introduced the Financial Services Bill to Parliament, which received Royal Assent in December 2012. The legislation establishes a Financial Policy Committee (FPC). The responsibility of the Committee relates primarily to the identification of, monitoring of, and taking of action to remove, or reduce, systemic risks with a view to protecting and enhancing the resilience of the UK financial system, and, subject to that, supporting the economic policy of Her Majesty’s Government, including its objectives for growth and employment.

The legislation requires the statutory FPC to prepare and maintain a written statement of the general policy that it proposes to follow in relation to the exercise of its powers of Direction. In September 2012, HM Treasury issued a consultation document on the Committee’s powers of Direction, suggesting that the FPC might be responsible for setting the countercyclical capital buffer and have a power of Direction over sectoral capital requirements. The Government asked the FPC to publish a draft policy statement for these tools in time to be considered alongside Parliament’s scrutiny of the associated secondary legislation. This document, produced under the guidance of an interim FPC established by the Bank’s Court of Directors in February 2011, meets that request.