The U.K. Financial Policy Committee has issued a summary of the resilience of the U.K. financial system to potential economic shocks and the vulnerabilities it faces. The summary follows the FPC’s meeting on October 2, 2019, at which the FPC agreed on its intended policy action going forward. The FPC is made up of Bank of England staff, the Chief Executive of the U.K. Financial Conduct Authority and certain external members who work to identify, monitor and take action to remove or reduce systemic risks to the U.K. financial system.
In its summary, the FPC highlights Brexit uncertainties that continue to weigh on the U.K. business environment. However, the FPC believes its 2018 stress tests were sufficiently severe to prepare banks for a disorderly Brexit. The FPC also regards the trade war between the U.S. and China as the biggest threat to the global economy, but believes even if a global-slowdown were to spill over to the U.K. and coincide with Brexit, the U.K. banking system could absorb the economic shocks. In the FPC’s view, the mismatch between redemption terms and the liquidity of some funds’ assets has the potential to become a systemic risk, and the Bank of England and FCA are conducting a joint review to assess how redemption terms might be better aligned with the liquidity of assets. Developments in payments activities are currently an area of innovation in financial services. The FPC has agreed a set of principles to guide its assessment of prudential regulation in this area and HM Treasury is leading a review of the payments landscape. HM Treasury’s review focuses on supporting choice, competition and resilience and ensuring that regulation and infrastructure keep pace with innovation. The FPC is placing a particular focus on Libra, the Facebook digital coin that it believes has the potential to become a systemically important payment system. The FPC confirms that it would expect such a system to comply with the highest standards of resilience and be subject to supervisory oversight. EU finance commissioner Valdis Dombrovskis recently confirmed that Europe should adopt a common approach on crypto-assets like Libra and that he anticipated proposing new legislation on the area. The reliance of global financial markets on LIBOR is another perceived risk to financial stability and the FPC encourages firms to increase the pace of their transition to alternative benchmark rates. In June this year, the FCA published a report summarizing the preparations that firms were making for the transition away from LIBOR and set out suggestions for how firms might enhance their preparations. In Q4 of 2019, the FPC will consider further policy and supervisory tools that could be used to reduce legacy LIBOR contracts.
View the FPC's Summary.
View details of the FCA's report on firms' preparations for LIBOR.
View details of the FCA's guidance on the regulatory perimeter and cryptoassets.
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