UK PRA Financial Policy Summary

On Oct. 9, UK PRA issued financial policy summary, record Oct. 2019.

  • FPS and record for Oct. 2 meeting, focus on UK financial system resilience to Brexit.
  • Follows UK BoE Jul. 2019 issued Jul. 2019 stability report and record, see #62511.
  • Financial System Resilience to Brexit
  • Brexit uncertainties, particularly in environment of weaker global growth, continue to weigh on economic activity in UK, e.g. in business investments, prices of UK assets.
  • In flows of foreign capital into UK, in commercial property, leveraged lending markets.
  • Businesses, authorities actions resulted in some improvement re preparedness of UK economy for a no-deal Brexit but material risks of economic disruption remain.
  • UK financial system core including banks, broker dealers, insurance companies is resilient to, prepared for wide range of risks it could face, including worst-case Brexit.
  • Found that major UK banks could absorb impact of 2018 stress test, which encompassed disorderly Brexit, and still have significantly more capital than in 2007.
  • FPC keeps UK countercyclical capital buffer (CCyB) rate at 1%, stands ready to move CCyB rate in either direction as economic conditions, overall risk environment evolve.
  • As per preparations made by authorities, private sector, most risks to financial stability from disruption to cross-border financial services in no-deal Brexit are mitigated.
  • Significant further asset price volatility to be expected in no-deal Brexit, i.e. demand for UK assets to fall sharply, depreciating sterling, tightening financial conditions.
  • For UK household, business via equity prices adjustments in corporate, bank funding.
  • Regardless of UK-EU future relationship, consistent with statutory responsibilities, FPC will remain committed to implementation of robust prudential standards in the UK.
  • I.e. maintaining level of resilience at least as great as that currently planned, which itself exceeds that required by international baseline standards, maintaining UK authorities’ ability to manage UK financial stability risks.
  • Financial System Resilience to Global Risks
  • US-China trade war weighed on global growth, biggest global economy near-term risk.
  • Global growth has slowed, but not by as much as in 2018 stress test, US-China tariffs issue contributed to slowing global growth, likely to weigh on global growth in future.
  • Even if protectionist-driven global slowdown were to spill over to UK at same time as no-deal Brexit, FPC judges core UK banking system would be strong enough to absorb.
  • Future shocks to global economy could be amplified by material debt vulnerabilities.
  • Structural financial markets illiquidity, reduced space for monetary authorities to act.
  • Core of UK banking system remains resilient to severe global and market stress, e.g. international exposures of major UK banks were tested against global scenario.
  • More severe than the financial crisis in the 2018 stress test, included recessions in mainland China, HK, euro area, US and sharp falls in price of a financial assets range.
  • Major UK banks with international, trading exposures were assessed to be resilient to that scenario, results of 2019 stress test will be published in Dec. 2019.
  • Other Topics Covered
  • Tackling vulnerabilities in open-ended funds, ensuring payment systems support financial stability, transition away from Libor to alternative benchmark rates.

Regulators UK BoE; UK FPC; UK PRA
Entity Types Bank; BHC; BS; IA; Ins; Inv Co; MSB; SIFI; Thrift
Reference RP, PR, 10/9/2019; Mt 10/2/2019; CCyB; Brexit
Functions Accounting; BCS; Client Money; Compliance; Financial; Legal; Operations; Risk; Technology; Treasury
Countries United Kingdom
Products Banking; Commodities; Corporate; Cryptocurrency; Deposits; Derivatives; Equity; Fixed Income; Forex; Fund Mgt; Futures; Hedge Funds; Insurance; Loan; Mortgage; Mutual Funds; Payments; Securities
Regions EMEA
Rule Type Final
Rule Date 10/9/2019
Effective Date 10/9/2019
Rule Id 66066
Linked to Rule :62511
Reg. Last Update 10/9/2019
Report Section UK

Last substantive update on 10/10/2019