The Financial Policy Committee of the Bank of England has published its latest financial stability report. The report sets out the FPC's view of the resilience of the U.K. financial system and the main risks to the U.K.'s financial stability as well as the work being carried out to address those risks. The FPC states that the 2019 annual cyclical scenario stress test indicates that the U.K. banking system would be resilient to deep simultaneous U.K. and global recessions. Furthermore, the U.K. financial system is resilient to and prepared for any disruptions that may arise from a disorderly Brexit.
Following a review with the Prudential Regulation Committee and the BoE of the structure and balance of capital requirements:
The FPC has reviewed the initial findings of the joint review by the Financial Conduct Authority and the BoE on risks relating to open-ended funds and agrees that the mismatch between redemption terms and the liquidity of some funds' assets gives an advantage to investors redeeming before others, and that this has the potential to create systemic risk. The FPC considers that:
Following publication of the FPC's financial stability report, the BoE and FCA issued a joint press release stating that they would consider how these principles can be implemented and that the FCA will consider the final principles (to be released in 2020) in developing changes to its rules.
The FPC has also adopted an approach to inform HM Treasury's review of how innovations in payment systems can support financial stability. The principles are:
The FPC considers that Libra is an example of a stablecoin proposal that could be systemically important and states that the regulatory framework that would apply to Libra must be clear and in place before Libra is launched.
Finally, the FPC summarizes the steps being taken by the U.K. regulators and industry to ensure a smooth transition from LIBOR.
View the FPC's financial stability report.
View the BoE's report on the effectiveness of the stress-testing frameworks.
View the joint BoE and FCA press release on rules for open-ended funds.
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