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BUILDING SOCIETIES Your money and the financial system Page 16 The Bank of England’s Financial Policy Committee (FPC) The objective of the FPC is to spot and fix threats to the financial system as a whole. There are two key policy levers in the FPC tool kit. These are its powers of Direction and Recommendation. Recommendations to anyone FINANCIAL POLICY FPC Directions are binding instructions on the Prudential Regulation Authority and Financial Conduct Authority. COMMITTEE The FPC can issue a Direction to the Prudential Regulation Authority to make banks, building societies and large investment firms: • raise or lower the total amount of capital on their balance sheets; • adjust the amount of capital for unexpected losses on specific types of loans – say to the property market. Directions to PRA & FCA HEDGE FUNDS PENSION FUNDS CREDIT UNIONS INSURERS
BUILDING SOCIETIES Page 17 The FPC can make a Recommendation to anyone. For example, it can recommend to HM Treasury that it should be given new powers, or that the scope of regulation is enlarged to include a wider set of financial institutions. It has a special power to make a comply-or-explain Recommendation to the Prudential Regulation Authority and the Financial Conduct Authority. If the regulators decide not to implement a comply-or-explain Recommendation, they are required to explain publicly their reasons for not doing so. INSURERS Comply-or-explain Recommendations to PRA & FCA The FPC is chaired by the Governor of the Bank of England. It includes the Bank’s three Deputy Governors for financial stability, prudential regulation and monetary policy and its Executive Director for financial stability. It has four external members selected for their experience and expertise in financial services. The Chief Executive of the Financial Conduct Authority is also a member. The FPC meets at least four times a year. Shortly after each meeting the FPC announces new policy measures in a Statement and a fuller Record of its thinking is published a few days later. Twice a year it issues a Financial Stability Report with a comprehensive assessment of the risks and outlook for the UK financial system. INVESTMENT BANKS HIGH ST BANKS PENSION FUNDS Policy decisions can be put to a vote, but usually the FPC sets policy based on a consensus view. The FPC is accountable to Parliament for the use of its powers, mainly through regular appearances of its members before the House of Commons’ Treasury Select Committee.
Page 1 and 2: Your money and the financial system
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Page 15: Page 15 The Financial Policy Commit
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