Minutes

Introduction

Following the cessation of most LIBOR settings at the end of 2021, the Working Group on Sterling Risk-Free Reference Rates (the “Working Group”) concluded at its January 2022 meeting that it had met its objective to “catalyse a broad-based transition to SONIA across sterling derivative, loan and bond markets”.

Following this meeting, the Working Group confirmed that all Sub-Groups and Task Forces – except for the Bond Market Sub-Group, Loan Enablers Task Force and Communications and Outreach Sub-Group – would close as the Working Group moved into 2022 in a new form, with new objectives, and with continued support from the Bank of England and FCA.

The new overall objective was to assist in finalising the transition away from LIBOR, via:

1. Supporting the continued active transition of legacy contracts from synthetic sterling LIBOR to SONIA, and
2. Considering any implications of non-sterling LIBOR transition in UK markets.

To aid transparency in its new form, the Working Group agreed that it would publish summaries of the meetings of its Sub-Groups and Task Forces. Please see below for summaries of recent meetings.

The Bond Market Sub-Group (the “BMSG”):

Following the BMSG meeting, the FCA confirmed on 5 September that synthetic US dollar LIBOR will cease as planned, and hence the BMSG was wound down on 30 September.

The Loan Enablers Task Force (the “LETF”):

Chair: Marc Myer, HSBC

Following FCA confirmation that synthetic US dollar LIBOR will cease on 30 September, members agreed by written procedure to close the LETF following the last publication of those settings. Hence the LETF was wound down on 30 September.

The Communications and Outreach Sub-Group:

Co-Chairs: Ryan O’Keeffe, Blackrock and Phil Lloyd, Natwest Markets

Following FCA confirmation that synthetic US dollar LIBOR will cease on 30 September, members agreed by written procedure to close the Communications and Outreach Sub-Group following the last publication of those settings. Hence the Communications and Outreach Sub-Group was wound down on 30 September.

Minutes

Minute 1: Introduction

The Chair (Sharon Blackman) opened the meeting. The Chair noted the apologies and the attendees.

Minute 2: Minutes

The minutes of the meeting of 18 June 2024 were approved.

Minute 3: Global FX Committee (GFXC) Update (Natalie Lovell and Matthew Conway, Bank of England)

The speakers gave a brief update on two of the Global FX Committee’s key priorities.

1. The 3-year review of the Global FX Code:

The 3-year review of the FX Global Code is currently underway. To consider possible changes to the Code the GFXC established two working groups. One to consider FX Settlement and the other to consider FX Data.

FX Settlement Risk Working Group update

There are three areas of focus.

• The first is to strengthen Principle 35: Settlement Risk which includes the addition of a risk waterfall approach for managing FX Settlement Risk.
• Secondly, updates have been made to Principle 50: Measuring, Monitoring, and Controlling Settlement Risk to make it clearer how Market Participants should measure, monitor and control FX Settlement Risk.
• Lastly, there are proposed changes to Principle 51: Standard Settlement Instructions (SSIs). These proposed changes aim to discourage the use of multiple settlement instructions for the same counterparty, and for completeness the Working Group has proposed that a definition of SSI be added to the Code Glossary.

FX Data Working Group update

The changes proposed are to:

• enhance transparency around user-generated trade data on electronic trading venues.
• provide more transparency on FX data/transactions under certain types of “delegated execution”.

The working group has proposed amendments to Principle 9 and 10: Execution and the Disclosure Cover Sheets.

FX Global Code next steps: the updated version of the Code is due to be published by the end of the year.

2. The semi-annual FX Settlement Survey:

Matthew Conway gave an overview of the new global approach for collecting FX settlement data. It was noted that the October 2024 FX Settlement Survey round had been launched. A total of seven central banks had adopted the new approach for collecting FX Settlement data for the October round, ahead of the 2025 BIS Triennial Survey which would use the same Survey Template and Reporting Guidelines

Minute 4: ISDA update (Rick Sandilands and Jonathan Martin (International Swaps and Derivatives Association (ISDA))

FX Definitions

The speakers briefly explained the history of the FX and Currency Option Definitions (FX Definitions). These FX Definitions are jointly published with ISDA and EMTA and were published 1998, so are due to be reviewed and updated.

ISDA developed a plan for updating the FX Definitions, based on responses to an ISDA survey in 2023 of over 50 market participants, to understand how the current definitions can be improved, taking into account recent events and the evolution of FX markets since 1998.

Drafting of the updated FX Definitions will take place throughout 2024 and 2025, with publication expected end of November 2025. Market implementation of the updated FX Definitions will be in November 2027. This gives market participants and infrastructure providers 2 years to incorporate the changes into their systems and processes and aligns with Swift’s release schedule.

The drafting workstreams are focussed on:

• Disruption Events/Fallbacks overhaul
• Adjustment for unexpected holidays
• Digitisation/modernisation of the FX Definitions structure
• FX Novation mechanics
• EMTA and EMTA/SFEMC Template

An Implementation steering committee has been set up to keep an eye on the drafting to make sure nothing is being proposed that could cause operational problems.

Notices Hub

The ISDA speakers then gave a Presentation on the proposed Notices Hub. The proposed ISDA Notices Hub is intended to be a robust, secure online platform to provide market participants with a faster, safer and more efficient method for delivering and receiving time-critical notices under ISDA and other Master Agreements. Market participants would be able to maintain control of their contractual position even when more traditional means of delivery prove difficult or impossible. The Notices Hub would include functionality to allow physical address details to be updated in all ISDAs with matched counterparties by single entry, plus periodic verification to reduce incidence of stale address details.

The Indicative timeline:

• Completed: High-level Legal Survey: surveyed 71 jurisdictions with 59 responses to date. They ran a commitment process where the respondents were asked for principles of support on a non-reliance basis, subject to protocol drafting and what the platform looks like.
• Q3 & Q4 2024: Commence build and draft protocol and bilateral documents.
• Q1 & Q2 2025: Complete build, finalise documents and finalise opinions.
• Q2 2025: Launch Protocol pre-adherence period
• Q3 2025: Notices Hub go-live/Protocol launch.

Minute 5: Any other business

The timings and days of future meetings were discussed.

Attendees

Sharon Blackman (Chair) – Citigroup

Baljit Saini – NatWest (virtual)

David Harris – Financial Conduct Authority (virtual)

Joanne Napleton – London Stock Exchange Group

Krisha Somaiya – UBS (virtual)

Rowland Stacey – Goldman Sachs (Virtual)

Simon Goldsworthy – Deutsche Bank (virtual)

FXJSC Legal Sub-Committee Secretariat

Sakshi Gupta – Bank of England

Matthew Hartley – Bank of England

Carly Jones – Bank of England

Guest attendees

Matthew Conway – Bank of England

Natalie Lovell – Bank of England

Jonathan Martin – International Swaps and Derivatives Association (ISDA)

Rick Sandilands – International Swaps and Derivatives Association (ISDA)

Apologies

Gaynor Wood – CLS

Harkamal Singh Atwal – HSBC

Mayank Patel – Bank of America

Nimisha Kanabar – Morgan Stanley

Rakesh Shah – Standard Chartered

Sunil Samani – XTX Markets

Tamsin Rolls – JP Morgan Chase

Bankstats article

The Bank of England publishes data on the external business of monetary financial institutions (MFIs) operating in the UK and consolidated worldwide claims of UK-owned MFIs. These publications currently aggregate counterparty countries into three groups: Developed countries, Offshore Financial Centres, and Developing countries. Published tables (C3.1, C3.2, C3.4, and C4.2) and statistical releases External business of Monetary Financial Institutions operating in the UK – 2024 Q3; Consolidated worldwide claims – 2024 Q2 have focused on the economic activity within these groupings. 

These breakdowns were set up to align with the grouping used by the Bank for International Settlements (BIS) in their published reports. The BIS has since moved away from this approach, reclassifying countries into just two categories: Advanced Economies (AEs) and Emerging Markets and Developing Economies (EMDEs). Countries previously classified as Offshore Financial Centres will be reclassified as EMDEs unless they are overseas or dependent territories of the AEs, in which case these overseas and dependent territories along with those for existing Developed countries will be classified as AEs, as outlined in the BIS country grouping convention. 

The Bank intends to align our publication approach with that of the BIS such that our published materials aggregate counterparty countries into the two categories of AEs and EMDEs, following the BIS country grouping convention. The Bank intends to implement this change for our publications of 2025 Q1 data going forward, scheduled for publication on 6 June 2025 and 20 June 2025 for our external business of UK MFIs and consolidated worldwide claims statistical releases respectively. The changes will be implemented going back to September 1997, and the legacy series using the old country groups will not be maintained. This will affect both our published tables, statistical releases, and data available on Our Database. 

As part of these changes, a review has been undertaken of the individual countries and grouped countries listed in our published tables (C3.2 and C4.2). The grouped countries ‘West Indies UK’ (1Z) and ‘British Overseas Territories’ (1W) were not considered to provide meaningful information: the countries included in each group were not consistent with the definition of the group, and most of them have minimal liabilities and assets positions. Hence, these two groups will be discontinued from the published data and those countries with notable positions will be included in the individual country breakdown in the published tables. Countries included in ‘British Overseas Territories’ (1W) have been classified as AEs to be consistent with the current BIS classification. Similarly, French overseas and dependent territories currently classified to Developing Countries will be reclassified as AEs.

Only individual countries considered to have material positions compared to other countries in their respective country group region are shown in the published tables. This has resulted in a small number of countries either being added to or removed from these published tables. British Virgin Islands is now listed individually under AEs, and Greenland is now included as part of ‘Other’ under AEs rather than listed individually. 

Annex A provides the new country group locations for those countries currently residing in the Offshore Financial Centres country group, as well as new country group locations for ‘British Overseas Territories’ (1W) and those French overseas and dependent territories currently classified to Developing countries. Annex B contained in the attached document to this article provides information on the specific series affected by the changes outlined above. The attached document identifies those series that are being discontinued, those series where Offshore Financial Centres countries are now included, and those series where overseas and dependent countries are now included to be consistent with the BIS classification.

Additionally, the Bank is looking to update the series in Table C3.1 on assets and liabilities by nationality of the reporting institution and any corresponding series in Our Database. From 6 June 2025, the Bank will discontinue separately identifying Swiss, Italian and German nationality banks and instead provide series breaking down the nationality of the reporting institution by “UK”, “American, “Japanese”, “European”, and “Other”. 

If you have any questions about these changes, please contact us at dsd_ibs@bankofengland.co.uk.

Minutes

Item 1 – Welcome and Apologies

James Kaye (Chair, HSBC) welcomed observers Paula Kenee (Northern Trust), Nikki Woodley (Northern Trust), Nimit Jobanputra (Deutsche Bank), Lorraine O’Donnell (UK Finance) and Aparna Shrivastava (Morgan Stanley). The Chair also welcomed guest presenters Araminta Eyre, Faraaz Hamza, Sharon Wallis and Sumita Ghosh from the Bank of England.

The Chair welcomed alternate Emily Martin (Bank of England).

The Chair noted apologies from Andrew Batchelor (LCH), Andrew Grice (Bank of England), Fiona Maria O’Riordan (Citi) and Gavin Platman (Insight Investment).

Item 2 – Minutes of the June Meeting, feedback from the June Main FXJSC Committee meeting, Committee composition and Terms of Reference

The minutes from the 19 June 2024 meeting were agreed by Committee members. The Chair provided an overview of the June Main Committee meeting^{footnote [1]}, noting there had been an update on the transition to T+1 securities settlement in North America which had taken place at the end of May 2024. The Main Committee had also discussed FX market structure developments, including the effect of reduced levels of spot activity on over-the-counter primary venues relative to that in the FX futures market.

The Chair noted that the updated Terms of Reference had been shared with members after the June meeting and would be published following the September Main Committee meeting.

The Chair discussed the current composition of the committee and highlighted recent efforts to adopt more buy-side representation.

Item 3 – Meeting Varied People Update

The MVP initiative was launched in 2021footnote [2] to encourage diversity in the Bank of England’s Market Intelligence (MI) contacts, and the networks that the Bank engages with. Ms Ghosh explained that MVP had also been embedded in the Bank’s Money Markets Committee and FXJSC.

Committee members discussed some of the challenges they had experienced in attracting diverse talent and highlighted initiatives aimed at improving diversity within their own firms. Ms Ghosh provided insights on initiatives members could foster, in order to help drive diversity within their firms and across the industry.

Item 4 – 3-month forward event review

The committee discussed notable events upcoming over the next quarter which could impact FX operations. Committee members noted potential volatility around the US election. In preparation firms would implement heightened monitoring of systems and technology, to mitigate operational risk. Members also discussed the possibility of bolstering operations teams to provide increased coverage during US trading hours.

Item 5 – Update on FX Global Code and FX Settlement Survey

Natalie Lovell (Bank of England) provided an update on the 3-year review of the FX Global Code (the Code). Ms Lovell summarised the proposed changes to the Code which were focused on mitigating FX Settlement Risk and improving FX data transparency. It was noted that a public consultation on the proposed updates to the Code would commence in early October.

Ms Lovell also provided a brief update on the FX settlement survey. It was noted that the October 2024 survey round would provide a further opportunity for central banks to adopt the new approach for collecting FX Settlement data ahead of the 2025 BIS Triennial survey. ^{footnote [3]}

Item 6 – Update on FX Settlement Crisis Playbook

Kerry Peacock (Deputy Chair – MUFG) gave an update on the FX Settlement Crisis Playbook. An updated draft version of the playbook had been shared with members prior to the meeting. Members agreed to review the Playbook within their firms.

Item 7 – Update on move to T+1 securities settlement in North America

Following previous discussions on the transition to T+1 securities settlement in North America, the Chair asked members if they had experienced any issues. Committee members noted that no significant issues continue to be observed following the transition.

Item 8 – Discussion on operational incidents and SIMEX 24

Sharon Wallis (Bank of England) opened the discussion on the 19 July Crowdstrike incident, which affected systems running Windows 10 & 11. Ms Wallis noted how the incident demonstrates how third-party incidents could materialise into systemic disruption for the sector and the need for the sector to have the right mechanisms in place to respond effectively to such incidents. Members discussed how overall the incident did not cause a significant impact to UK operations within their firms.

Ms Wallis also provided an update on the SIMEX 24 exercise which was due to take place on 1 October and would consider how the financial sector would respond in the case of a major operational disruption that would require a total shut down and restart of the sector. The FXJSC Operations Sub-Committee was due to take part in the exercise as one of the Sector Response Groups.

Item 9 – CLS Update

John Hagon (CLS) noted that CLS Settlement volumes and values had continued to outperform projections. Mr Hagon also provided an update on CLS’ Alternative Processing Site (APS).

Mr Hagon highlighted that CLS would issue an update on the impact of the move to T+1 securities settlement in North America.

Item 10 – GFXD Update

Steve Forrest (UBS) noted that the GFXD FX Operations Committee had discussed FX settlement risk and how the industry can increase the adoption of Payment Versus Payment settlement.

Non-Deliverable Forwards (NDFs) were discussed, including the variation across the FX market in how NDF trades were confirmed. The group had formed a workstream on ‘pain points’ in FX operations, with the inefficiency of chasing unconfirmed trades a point of discussion. Mr Forrest noted that the group also considered the Future of FX, with a backward-looking task to be carried out, which would analyse how many of the expected trends in the FX market have materialised.

Item 11 – FCA Update

Oliver McCausland (FCA) noted that the FCA had been participating as an observer on the UK’s Accelerated Settlement Task Force Technical Group. Mr McCausland highlighted that the group would consult the market with its draft recommendations and hold an industry event in October 2024 to discuss the recommendations.

Item 12 – Any other business

The Chair noted that the next meeting will be held at the Bank of England on 20 November 2024. Members were invited to host the March 2025 meeting.

Attendees

Aaron Mills – Citadel

Alex Chow – Investment Association

Anna Chadderton – Goldman Sachs

Claire Forster-Lee – Morgan Stanley

Daniel Hoye – Natwest Markets

Gail Smith (Deputy Chair) – RBC Capital Markets

James Kaye (Chair) – HSBC

Joe Halberstadt – SWIFT

John Hagon – CLS

Kerry Peacock (Deputy Chair) – MUFG

Mark Codling – Deutsche Bank

Oliver McCausland – FCA

Steve Forrest – UBS

FXJSC Secretariat

Eleanor Garrett – Bank of England

Joe Hanrahan – Bank of England

Matthew Hartley (Legal Representative) – Bank of England

Natalie Lovell – Bank of England

Alternates

Emily Martin – Bank of England

Guest attendees

Paula Kenee – Northern Trust

Nikki Woodley – Northern Trust

Nimit Jobanputra – Deutsche Bank

Lorraine O’Donnell – UK Finance

Aparna Shrivastava – Morgan Stanley

Sumita Ghosh – Bank of England

Araminta Eyre – Bank of England

Faraaz Hamza – Bank of England

Sharon Wallis – Bank of England

Apologies

Andrew Batchelor – LCH

Andrew Grice – Bank of England

Fiona O’Riordan – Citi

Gavin Platman – Insight Investment

Minutes

Item 1 – Welcome

Vicky Saporta (Chair, Bank of England) welcomed guest presenters, David Adams (Morgan Stanley), Michael Grady (Aviva Investors), and from the Bank of England Andrew Nye, Sean Plumb, Sharon Wallis, Ali Moussavi, and Muna Lisimba.

Item 2 – June meeting minutes

The minutes of the 25 June 2024 meeting were approved.

Item 3 – Market update

David Adams (Morgan Stanley) and Michael Grady (Aviva Investors) presented an update on recent market developments.

The presenters explained that the Japanese yen was more sensitive to rates than to risk appetite relative to other currencies. Accordingly, the yen had been an attractive investment against a backdrop of anticipated US interest rate cuts and uncertain market risk sentiment. Members discussed potential yen strength should Japanese pension funds and life insurance companies repatriate their investments in light of tighter monetary policy by the Bank of Japan.

The presenters noted that the US policy outlook was binary, and largely depended on the result of the 2024 US election, which remained close. Members discussed the potential implications of the US election on the FX market and noted that some uncertainty could persist beyond the election as government policy unfolded.

Members also noted that FX market functioning had quickly returned to normal after the market volatility in early August 2024.

Item 4 – FX market resilience during recent operational disruptions

Andrew Nye, Sean Plumb, and Sharon Wallis (all Bank of England) reminded members of the Sector Response Framework (SRF) and how it was used to respond to systemic operational issues. They also provided an overview of the recent Consultation Paper on critical third parties to the UK financial sector^{footnote [1]}.

James Kaye (Chair of the FXJSC Operations Sub-Committee) noted that the Operations Sub-Committee had met on 18 September. The Committee had discussed the Swift and CrowdStrike issues in July and noted their limited impact on the FX market.

Members agreed that the FX market had been resilient during the operational issues due to its diverse and fragmented nature. Members discussed the work CLS was undertaking to support its resilience, including the establishment of an Alternative Processing Site. It was noted that the FXJSC Operations Sub-Committee was also revising its FX Settlement Crisis Management Playbook, which covered what firms should do in the event of an outage of a critical FX settlement system. Members expressed an interest in a future discussion on FX settlement resilience.

Item 5 – Bank of England’s approach to innovation in money and payments discussion paper

Ali Moussavi (Bank of England) provided an overview of the Bank of England’s approach to innovation in money and payments Discussion Paper published on 30 July 2024^{footnote [2]}. Mr Moussavi highlighted that innovation in money and payments presents opportunities and risks for central banks’ monetary and financial stability objectives. Therefore, central banks should actively engage with these innovations.

Members discussed how innovation in wholesale and retail payments could change the role of FX market participants and impact FX market structure. Members noted the benefit of extended Real Time Gross Settlement operating hours to support improved capability of Payment versus Payment settlement.

Item 6 – FXJSC Turnover Survey

Muna Lisimba (Bank of England) presented the April 2024 FXJSC Turnover Survey results. Mr Lisimba noted that the results were in line with long-term trends. Daily average turnover had increased by 14% in April 2024 from October 2023 to $3,351 billion. FX swaps remained the most traded instrument by turnover.

Item 7 – Global Foreign Exchange Committee (GFXC) update

Natalie Lovell (Bank of England) gave an update on the GFXC’s three-year review of the FX Global Code (the “Code”). Ms Lovell noted that the review had focused on further mitigating FX settlement risk and enhancing FX data transparency. A public consultation on the proposed changes to the Code was planned for October 2024, and the updated Code was expected to be published in December 2024.

Ms Lovell noted that the October 2024 FX Settlement Survey round had been launched. A total of seven central banks had adopted the new approach for collecting FX Settlement data for the October round, ahead of the 2025 BIS Triennial Survey which would use the same survey template.

Item 8 – FXJSC Sub-Committee updates

Sakshi Gupta (Bank of England) noted that the Legal Sub-Committee had met on 17 September. Agenda items had included: an update on the International Swaps and Derivatives Association’s review of its FX and Currency Option Definitions; and updates on the Code review and FX Settlement Survey.

Mr Kaye (Chair of the Operations Sub-Committee) noted that in addition to operational resilience the agenda items at its 18 September meeting had included updates on the Bank of England’s Meeting Varied People initiative, the Code review and FX Settlement Survey, and a discussion on the North America move to T+1 securities settlement.

Item 9 – Regular updates

Alan Barnes (Financial Conduct Authority) provided an update on the UK Accelerated Settlement Taskforce’s work. Mr Barnes noted that the Taskforce was due to publish its draft recommendations shortly. Mr Barnes also noted that the International Organization of Securities Commissions (IOSCO) had continued its work on strengthening pre-hedging standards and was expected to publish a report by the end of 2024.

Attendees

Alan Barnes – Financial Conduct Authority
Giles Page – Citigroup
James Kaye (Chair, FXJSC Operations Sub-Committee) – HSBC
James Kemp – Financial Markets Standards Board
Jeremy Smart – XTX Markets
Kate Hill – Aviva Investors
Kevin Kimmel – Citadel Securities
Mani Natarajan – Morgan Stanley
Marc Bayle de Jesse – CLS
Mimi Rushton – Barclays
Neehal Shah – BNP Paribas
Paul Houston – CME Group
Philippe Lintern – Bank of England
Rajesh Venkataramani – Goldman Sachs
Richard Bibbey – HSBC
Richard Purssell – Insight Investment
Sally Francis-Cole – London Stock Exchange Group
Sarah Boyce – Association of Corporate Treasurers
Sarah Collins – UBS Asset Management
Simon Manwaring – NatWest Markets
Sophie Rutherford – State Street
Stephen Jefferies – JP Morgan
Vicky Saporta (Chair) – Bank of England

FXJSC Secretariat

Laura Austin – Bank of England
Natalie Lovell – Bank of England
Sakshi Gupta (Legal Secretariat) – Bank of England
Sita Mistry – Bank of England

Guest attendees

Ali Moussavi – Bank of England
Andrew Nye – Bank of England
David Adams – Morgan Stanley
Michael Grady – Aviva Investors
Muna Lisimba – Bank of England
Sean Plumb – Bank of England
Sharon Wallis – Bank of England

Apologies

Galina Dimitrova – The Investment Association
Lisa Dukes – Corporate Representative – Association of Corporate Treasurers
Nina Moylett – M&G plc
Sharon Blackman (Chair, FXJSC Legal Sub-Committee) – Citigroup

Statistical notice

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We are seeking your confirmation regarding confidentiality permissions for the upcoming year, your input is crucial in maintaining the quality and integrity of the data we publish.

Reporting firms will have the following options for confirming their permissions:

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    2b. Give prior consent with the exception of certain data points.
3. Opt out and give consent on a case-by-case basis.
 
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To confirm your preferences, please log in to the BEEDS portal to review and complete the survey. For further assistance, please refer to the BEEDS Portal Guide or contact BEEDSquerieis@bankofengland.co.uk.

For groups that complete statistical returns for multiple entities, a separate survey must be completed for each individual entity. To streamline this process, key firm information is prepopulated for your convenience.

To make any adjustments to your submitted return, please follow the resubmission process as outlined in the BEEDS portal User Guide. We will consider the latest submitted version of your return as your final submission.

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Permissions granted, excluding indefinite, will remain effective until our next review 31 December 2025.

Please complete your preference, no later than 5pm on Tuesday 31 December 2024.

Record of the Financial Policy Committee meeting on 15 November 2024

1. The FPC seeks to ensure the UK financial system is prepared for, and resilient to, the wide range of risks it could face, so that it is able to absorb rather than amplify shocks, and serve UK households and businesses, thus supporting stability and growth in the UK economy.

2. The Committee met on 15 November 2024 to agree its view on the outlook for UK financial stability. The FPC discussed the risks faced by the UK financial system and assessed the resilience of the system to those risks. On that basis, the Committee agreed its intended policy actions.

The overall risk environment

3. The FPC discussed recent developments in financial markets; global vulnerabilities; UK household and corporate debt vulnerabilities; and the resilience of the UK banking sector and market-based finance. The FPC’s judgements for these areas would be set out in the November Financial Stability Report (FSR).

Results of the 2024 desk-based stress test of the UK banking system

4. The FPC discussed the results of the 2024 desk-based stress test of the UK banking system, which the Bank had launched in June 2024. A key benefit of a desk-based approach was to allow for banking sector resilience to be tested to more than one adverse macroeconomic scenario. The exercise tested the resilience of the banking system to two hypothetical adverse scenarios that each included a severe but plausible combination of shocks.

5. One of the scenarios featured a global aggregate supply shock with higher-than-expected inflation leading to an increase in interest rates. The other scenario featured a global aggregate demand shock with falling inflation leading to a decline in interest rates. Both scenarios featured a severe fall in economic output and asset prices domestically and globally, along with rises in unemployment.

6. The FPC noted the results of the desk-based stress test, which indicated the UK banking system would have the capacity to continue supporting households and businesses in either scenario.

7. The overall capital drawdown was higher in the global aggregate supply shock scenario relative to the demand shock scenario. This reflected the impact of higher credit impairments in that scenario, predominantly driven by differences in affordability pressures and interest rates.

8. The aggregate results were sensitive to different assumptions regarding scenario severity and behavioural responses. The FPC noted sensitivity analysis suggested that increasing the size of the house price shock could have a non-linear impact on impairments. Separately, sensitivity analysis also indicated that were banks to pass on more than the increase in Bank Rate to depositors in the supply shock scenario, or were interest rates to remain low for longer in the demand shock scenario, it would likely lead to upward pressure on lending spreads, and so affordability, relative to the assumptions embodied in the exercise.

9. Further detail of the results of the test would be published in the November FSR.

The UK countercyclical capital buffer rate decision

10. The FPC discussed its setting of the UK countercyclical capital buffer (CCyB) rate. The Committee reiterated that its principal aim in setting the CCyB rate was to help ensure that the UK banking system was better able to absorb shocks without an unwarranted restriction in essential services, such as the supply of credit, to the UK real economy. Setting the UK CCyB rate enables the FPC to adjust the capital requirements of the UK banking system to the changing scale of risk of losses on banks’ UK exposures over the course of the financial cycle. The approach therefore includes an assessment of both financial vulnerabilities and banks’ capacity to absorb losses on their UK exposures, including the potential impact of shocks.

11. In considering the appropriate setting of the UK CCyB rate, the FPC discussed its judgements around underlying vulnerabilities that could amplify economic shocks. Since the FPC’s Q3 meeting, the outlook for UK growth was a little stronger, but significant financial market and global vulnerabilities remained. However, those indicators directly relevant to banks’ UK exposures, including household debt-to-income, corporate gross debt to earnings and domestic credit growth, continued to be around or below long-term averages. There were some further indications of easing credit conditions over the past quarter. The FPC judged that, overall, credit conditions continued to reflect the macroeconomic outlook.

12. The FPC observed that UK banks’ resilience to these risks continued to be supported by strong asset quality and strong capital positions. The results of this year’s desk-based stress test further suggested that the UK banking system could continue to support households and businesses even if economic, financial and business conditions turned out to be substantively worse than expected. The Committee noted that the greater level of UK impairments in the supply shock scenario implied that a higher CCyB rate would be required to absorb the set of shocks in this scenario relative to the demand shock scenario.

13. In view of these considerations, the FPC decided to maintain the UK CCyB rate at 2%. Maintaining a neutral setting of the UK CCyB rate in the region of 2% would help to ensure that banks continued to have capacity to absorb unexpected future shocks without restricting lending in a counterproductive way.

14. The FPC recognised the continued uncertain environment and reiterated that it would continue to monitor the situation closely. The FPC stood ready to vary the UK CCyB rate in either direction in line with the evolution of economic and financial conditions, underlying vulnerabilities, and the overall risk environment. The Committee would continue to use the Bank’s stress tests to help assess the potential impact of any build up in risks on the ability of banks to continue lending to UK households and businesses.

The Bank of England’s approach to stress testing the UK banking system

15. Under the guidance of the FPC and PRC, the Bank had produced an updated ‘Approach to Stress Testing the UK banking system’, which would be published alongside the November FSR. The approach was designed to support the objectives of the FPC and the PRA in an effective and proportionate way. It would have three key components.

16. First, the Bank expected to carry out every other year a bank capital stress test in which banks participate. Such an exercise would be a test of risks related to the financial cycle in which the largest and most systemic UK banks participated, and would be used to inform the setting of capital buffers for the banking system and individual banks. The results of the stress test would be informed by both participating banks’ submissions of the impact of the stress scenario and the Bank’s own estimates. The FPC welcomed the decision to run such an exercise in 2025. As previously announced in the 2023 Q3 Record, the cohort of participants in the 2025 test will not be expanded beyond the cohort that was included in the 2022/23 annual cyclical scenario.

17. The new approach included a reduced frequency for full cyclical stress tests with bank participation compared to the annual cyclical scenario tests that were used for similar purposes under the previous approach set out in 2015. Reflecting the build-up of bank capital since the global financial crisis, the changing nature of risks the banking sector faces, and the need to be proportionate in pursuit of the FPC and PRC’s objectives, in updating its approach the Bank had judged that it could now better support those objectives by undertaking a full bank capital-setting exercise in which banks participate every other year instead of annually.

18. This change represented a material efficiency gain in the Bank’s overall approach to stress testing, ensuring the burden placed on participating banks was proportionate and supported the UK banking sector’s competitiveness and growth. It also created space to assess and address a wider range of risks to help respond to an evolving risk environment, while preserving predictability for the purposes of informing the setting of individual banks’ capital buffers.

19. Participation in such a bank capital stress test would be based on an assessment of a bank’s share of lending to the UK real economy, other measures of its systemic importance, and the test’s overall coverage of the banking sector’s lending to the UK real economy. The Bank would give notice of at least 12 months to any new bank it decided to include in this exercise to ensure that it had sufficient time to prepare for its participation.

20. The FPC welcomed the Bank’s intentions to deliver insights into non-systemic banks by utilising existing stress testing and supervisory assessment tools for these banks. The Bank would also continue to gain reassurance on the resilience of UK-based branches and investment bank subsidiaries of foreign banks through engagement with the home supervisory authorities.

21. Second, in the intervening years the Bank expected to use stress testing approaches when appropriate to supplement its assessment of the resilience of the banking system to risks related to the financial cycle. This would be done in a way that is less burdensome for banks, for example through desk-based stress tests or targeted exercises.

22. Third, the Bank would continue to use exploratory exercises as a means of assessing other risks, including structural and emerging risks that are not closely linked to the financial cycle. Participation in these exercises would depend on the relevance of banks’ business models to the scenario, and whether it is proportionate for those banks. As it has done with such tests in the past, when deciding on the timing of these exercises the Bank would take into account the risk environment and sequencing and timing of other stress test exercises. The Bank would also engage with relevant firms, to ensure appropriate notice is provided to allow time to prepare for participation, and will ensure the volume and complexity of submissions is proportionate.

Results of the system-wide exploratory scenario

23. The FPC welcomed the publication of the conclusions of the Bank’s system wide exploratory scenario (SWES) exercise. The SWES was a first-of-its-kind exercise to explore how the UK financial system as a whole would respond to a market shock. The FPC noted that the SWES had improved its understanding of the behaviours of banks and non-bank financial institutions (NBFIs) during stressed financial market conditions, and how those behaviours interact to affect financial markets that were core to UK financial stability. The FPC discussed and noted the key conclusions of the report.

24. The FPC noted that repo market resilience was central to supporting core markets in stress. The SWES illustrated that during a market stress banks were unlikely to provide all of the additional repo financing despite their willingness to draw on central bank facilities. The FPC welcomed further work to consider how to increase repo market resilience, such as on market structure and considering the costs and benefits of greater use of central clearing or of minimum haircuts on gilt repo.

25. The FPC noted that the SWES illustrated how actions taken by authorities and market participants following recent stresses had helped to improve gilt market resilience. Nonetheless, the exercise highlighted how outcomes in the gilt market were very sensitive to initial conditions, the nature of the shock and outcomes in other markets – most importantly, repo financing markets and the rates derivatives market. The FPC welcomed further work to deepen understanding of, and mitigate risks from, other vulnerabilities highlighted by this exercise, and noted the importance of work already underway to improve the resilience of MMFs given their role as a source of liquidity.

26. The SWES also illustrated how rapid and correlated sales of sterling corporate bonds could amplify an initial shock and impact the functioning of this market, and potentially the ability of corporates to access these markets for either new or refinanced borrowing. Similar issues could arise in other markets used by pension funds for short term liquidity purposes, such as sterling asset backed securities. The FPC welcomed The Pensions Regulator taking forward work to assess the risk of such sales across a wider group of pension funds and, if warranted by this work, considering how guidance or the dissemination of data on collective pension fund liquidity actions could reduce these risks. The FPC noted again its Recommendation that The Pensions Regulator should have a remit to take into account financial stability considerations on a continuing basis.

27. The FPC noted that system-wide stress testing has proved to be an effective tool for improving the understanding of system-level vulnerabilities for the Bank and participating firms. The FPC noted how the exercise had identified many instances where market participants did not correctly anticipate counterparties’ likely actions and relevant system-wide dynamics during a stress; for example, some NBFIs did not receive all the repo financing they demanded. The FPC welcomed the Bank’s commitment, alongside the FCA, to continue to invest in their capabilities in this area for surveillance and risk assessment, and to update these findings periodically through continued close engagement with market participants in a way that is less resource intensive for firms, as the financial system and risk-taking evolves.

29. The FPC welcomed the publication of the Bank’s third public supervisory stress test of UK Central Counterparties (CCPs), which assessed the resilience of UK CCPs in order to inform the Bank’s supervisory and policy agenda.

30. The FPC noted that the results of the stress test found that UK CCPs were resilient to a stress scenario similar to the worst-ever historical stresses, combined with the default of their two largest members. When considering alternative scenarios and the cost of liquidating highly concentrated positions, this exploratory exercise identified some potential pockets of vulnerability that the Bank would investigate further with relevant CCPs as part of its continuing supervision and report back to the Financial Market Infrastructure Committee.

Critical third parties to the UK financial sector

31. The FPC recognised the need for a robust yet proportionate framework to manage the risks that critical third parties (CTPs) may pose to financial stability and market confidence. In this light, the FPC welcomed the publication of the regulators’ final policy and rules for CTPs, as well as information on how the regulators will approach CTP oversight. This followed extensive industry engagement and collaboration among the regulators.

32. The regulators’ final policy for oversight of CTPs, once implemented, would be an important element of the regulators’ efforts to strengthen the operational resilience of the UK financial sector. This had been a key area of focus for the FPC since 2017. The policy took into account the FPC’s macroprudential approach to operational resilience to CTPs. In particular, it set out how disruption to a CTP’s services could impact financial stability through the interaction of macro vulnerabilities in the financial system (concentration, interconnectedness, dependence on data) and transmission channels (financial and operational contagion, and/or a loss of confidence). This should help third parties improve their understanding of the overall objective of the CTP regime, and obligations under it. The FPC would monitor the implementation and outcomes of the CTP regime as third parties were designated by HM Treasury and the regulators’ rules come into effect, with a focus on the impact of the regime on reducing the systemic risks posed by CTPs.

33. The CTP regime was informed by global standards on operational resilience, and related areas such as cyber, and had been designed to be coherent with similar existing and emerging regimes in other jurisdictions, such as the EU and US. Nevertheless, the FPC considered that international coordination in this increasingly important area could and should be strengthened. This would strengthen the regime and make it more efficient. The FPC encouraged the regulators and HM Treasury to continue to prioritise international coordination, cooperation, and information-sharing (in particular, during cross-border incidents involving CTPs) as the CTP regime is implemented.

Vulnerabilities at the intersection of the private equity and life insurance sectors

34. The FPC discussed the analysis, and agreed its judgements, that would be published in the ‘Emerging vulnerabilities at the intersection of the private equity and the life insurance sectors’ section of the November FSR.

FCA market transparency Policy Statement

35. The FPC had noted in March 2024 that there would be value in exploring ways to enhance market intermediation capacity in a stress, without compromising dealer resilience, including through potential changes to market structure.

36. In that context, the FPC welcomed the FCA’s policy statement on improving transparency for bond and derivatives markets (published on 5 November 2024). The policy statement contained rules to revise the scope and calibration of the transparency framework, as well as proposals to improve information content.

37. The FPC judged that, in addition to advancing the FCA’s objectives to enhance market integrity and promote effective competition, the transparency regime could support UK financial stability. The regime would do this by helping to increase both the number of participants and their trading volumes, thereby supporting market liquidity in normal and stressed conditions. Through its proportionate calibration, the regime supported continued liquidity provision by dealers, including in larger sizes, and considered the structure of different markets without introducing unnecessary complexity.

38. The FPC noted that the greater transparency of both price and trade size available under the regime would provide market participants with the tools to manage better the risks they face. An improved ability of market participants to manage liquidity risks, which was first and foremost their responsibility, could reduce the risk of demand for liquidity, including from NBFIs, rising unduly in stress. The FPC noted that it was important for market participants to factor in the data which would be made available through the transparency regime into their liquidity risk management, including in order to better estimate market depth and the cost of unwinding their positions.

2024 O-SII buffer framework review

39. Under UK legislation implementing the Other Systemically Important Institutions (O-SII) buffer, the FPC is required to review the framework used to guide the setting of the O-SII buffer rate at least every second year.

40. The FPC had previously noted in its October 2023 Record that it intended to assess in 2024 whether the current thresholds for the O-SII buffer continued to remain appropriate in the context of the intended aims of the framework.

41. Accordingly, the FPC reviewed the O-SII buffer framework and decided it would consult on a proposal to index the thresholds based on the growth in nominal GDP since 2019, the data used when the FPC last updated the thresholds. Between 2019 and 2023, UK nominal GDP had grown around 20%. The FPC judged that updating the O-SII buffer thresholds by that amount would ensure that the framework operated as intended and without undue tightening.

42. To ensure the framework continued to operate as intended in the future, and to avoid significant one-off increases in the threshold, the FPC proposed to assess the thresholds as part of its regular reviews of the framework, and to update them in line with nominal GDP growth, where appropriate. If avoiding significant one-off increases in the future required such reviews to be brought forward, the FPC could still consider doing so.

43. A more detailed proposal would be set out in an FPC consultation paper in 2025 Q1.

Calibration of the FPC’s recommendation on the loan to income flow limit

44. The FPC considered developments in the macroeconomy and the mortgage market in the context of its loan to income (LTI) flow limit. The LTI flow limit was an FPC recommendation to the PRA and the FCA that they should ensure that mortgage lenders do not extend more than 15% of their total number of new residential mortgages at LTI ratios at or greater than 4.5. This recommendation applied to all lenders which extend residential mortgage lending in excess of £100 million per annum (the de minimis threshold).

45. The FPC judged that the LTI flow limit, in combination with the FCA’s responsible lending requirements, continued to ensure the appropriate level of resilience. The FPC judged that in the current environment, and under a range of long-run scenarios, the LTI flow limit continued to guard against a material and unsustainable increase in household indebtedness and the share of highly indebted households.

46. The FPC considered the LTI flow limit de minimis threshold and decided to recommend to the PRA and FCA to index the threshold based on the growth in nominal GDP since 2014. Accordingly, the FPC has revoked the 2014 recommendation and issued a new recommendation to the PRA and FCA on the same terms as the 2014 recommendation, increasing the de minimis threshold so that lenders which extend residential mortgages of less than £150 million per annum would be exempt from the LTI flow limit. The FPC had considered its general duties in reaching this decision. The implementation date of this change would be set by FCA and PRA consultation processes. The FPC proposed to review this threshold regularly to ensure it continued to operate as intended.

47. The proposed update, and the update to the O-SII buffer threshold described above, were consistent with the broader approach to indexing regulatory thresholds within the Bank and PRA, as noted in the speech Competing for Growth by the Deputy Governor for Prudential Regulation, Sam Woods.

Financial risks from climate change

48. The FPC agreed to include an update on its approach to evaluating the impacts of climate change on financial stability in the November FSR.

The FPC’s remit response

49. The FPC had received a Remit letter from the Chancellor on 14 November 2024 setting out the economic policy of His Majesty’s Government and Treasury’s Recommendations under Sections 9D-9E of the Bank of England Act 1998. The FPC also noted the remit letters that the PRC and FCA had received. The FPC noted the strong emphasis on economic growth, and specifically the government’s new economic policy objective to ‘restore broad-based and resilient growth built on strong and secure foundations’, as well as the request for the FPC to assess and identify areas where there was potential to increase the ability of the financial system to contribute to sustainable economic growth without undermining financial stability. The FPC agreed to publish its response to the Remit letter in due course.

News release

The Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) have today set out plans to reduce the restrictions on bonuses of senior bankers.

A joint consultation, published today, proposes several changes to the current senior banker remuneration regime, including:

• Reducing the bonus deferral period for the most senior bankers to five years (down from eight for some) as first announced by Sam Woods at Mansion House in October 2024;
• For other, less senior bankers captured by the regime this will be reduced to four years; and
• Allowing part-payment of bonuses from year one, rather than year three as at present for some bankers.

Sam Woods, Deputy Governor of Prudential Regulation and CEO of the PRA said:

“These proposals on bankers’ bonuses will support UK growth and competitiveness without undermining financial stability. We should not return to the very dangerous pay structures that were commonly in place before 2008, but these proposals will reduce bureaucracy and support responsible risk-taking.”

Sarah Pritchard, Executive Director for Consumers, Competition and International at the FCA, said:

“These important changes will remove unnecessary duplication of rules between the regulators, streamline the remuneration regime for firms, and further strengthen the reputation and competitiveness of the UK banking sector”.

Additional details include:

• Removing EU-originated guidelines that:
  • prohibit paying dividends or interest on deferred bonuses awarded in shares or other instruments; and
  • require senior bankers to wait up to a year before being able to sell deferred bonuses in shares or other instruments.
• Reducing the number of individuals subject to rules on their pay, simplifying the approach for identifying those who should be subject to them, and giving firms more discretion to determine which employees will be subject to the rules.
• Ensuring bankers are held accountable for the outcomes of risk-taking decisions by introducing clarifications to existing policies ensuring that firms consider adjusting pay in the event of risk-management failures.

The consultation seeks to simplify the guidelines around banker bonuses, bringing the UK’s rules more in line with other countries. The proposed periods for deferral of bonuses provide enough time for problems to surface. They should also help to reverse a trend whereby banks have put a higher amount of total financial reward into fixed pay, which is less reactive to shocks, rather than bonuses, which can be adjusted down if events turn out worse than expected.

The proposals simultaneously look to strengthen the link between the actions of senior bankers and their financial rewards, strongly encouraging firms to tie bonuses closer to not just the successes of executives, but also any risk-management failures. The proposals also introduce greater alignment with the Senior Managers Regime, so that firms consider performance against PRA supervisory priorities in the bonus payouts of the responsible Senior Managers. This will complement the proposals in this consultation paper that aim to enhance accountability for risk management failure and risk management outcomes amongst senior staff in firms.

The FCA is proposing to remove several of the remuneration rules from its Handbook where these duplicate requirements in the PRA Rulebook. This will help firms as they will largely only need to refer to one set of remuneration rules.

Minutes

Item 1 – Welcome

The Chair thanked members for attending and confirmed that the Minutes of the June 2024 meeting had been published on the Bank’s website.^{footnote [1]}

The Chair welcomed those who were attending as part of the Bank’s Meeting Varied People (MVP) initiative and introduced Matt Roberts-Sklar who will be taking over as chair of the committee from December.

Items 2 – Discussion on Market Conditions

The Bank provided an overview of the July speech by executive director Victoria Saporta on the Bank’s future operating framework for reserves supply. The discussion centred on the future role and positioning of the Bank’s existing Indexed Long-Term Repo (ILTR) and Short-Term Repo (STR) facilities.

Committee members agreed that usage of the Bank’s STR facility, which supplies reserves against high-quality ‘Level A’ collateral, has been effective in controlling short-term market rates as reserves are drained from the system. One member noted it has also proved valuable for pure treasury cash flow management. One member noted, however, that regulation (specifically leverage capital requirements) can create frictions.

The committee observed that there has been growth in ILTR usage in recent months, but that it is unlikely the facility will be used regularly by the market to source reserves until we get closer to the preferred minimum range of reserves (PMRR). They noted that, when reserves become less ample, counterparties will have a greater incentive to place collateral with the Bank for a longer term.

Another member outlined that Level A collateral might be less readily available to certain parts of the UK banking sector (e.g. smaller retail firms) for use in the STR. It was noted that the ILTR is there to provide support through its wider range of applicable collateral.

Item 4 – LCH update on buyside repo access models

LCH presented on the key benefits of repo clearing for the buyside and opportunities for efficiencies going forward through adoption from the broader investment community.

Committee members provided feedback to LCH, highlighting key considerations and constraints.

Item 5 – FSB report on functioning and resilience of CP/CD markets

The Bank provided an overview of the Financial Stability Board’s paper on enhancing the functioning and resilience of Commercial Paper (CP) and Certificates of Deposit (CD) markets, outlining the key vulnerabilities and the reforms addressed in the paper.

Points raised the committee centred around secondary market liquidity, including how the short-dated nature of CP and CD incentivises a hold-to-maturity investment strategy; the one-way flow from money funds; and limited dealer inventory in sterling CP. Some possible solutions to improve market liquidity were discussed.

Members emphasised the opacity of the CP/CD markets, and that greater availability of transactional data would likely encourage participation. It was noted that greater clarity on the legislative framework underpinning these markets, and more information about issuers, would be beneficial.

Item 6 – Any other business

SIMEX24, the biennial industry/public sector stress exercise, is taking place on 1 October. This year’s exercise is scenario is based in a national power outage. The Bank will report back at the December MMC meeting.

A member also provided a brief update on the work of the Accelerated Settlement Taskforce on moving to ‘T+1’ settlement. Noting an overview of recent recommendations by an industry led technical group.

Committee attendees

Gordon Lowson – Abrdn
James Winterton – Association of Corporate Treasurers
Ina Budh-Raja – Bank of New York Mellon
Emma Cooper – BlackRock
Anna Pudlowska – BlackRock
Ben Arnold – BlackRock
James Murphy – HSBC
Marije Verhelst – Euroclear
Inna Shaykevich – Goldman Sachs
Chris Brown – Insight Investment
John Wherton – LGIM
Alan Williams – Santander UK
Romain Sinclair – Société Générale 
John Argent – Tradition
Nic Erevik – Newcastle Building Society
Nina Moylett – M&G
Avi Tillu – PIMCO
Louis Stewart – PIMCO
Vasi Ardelean – PIMCO
Tony Baldwin – LCH
Nick Barnes – LCH
James Upton – LCH
Chirag Patel – Rabobank
Jo Wheelan – DMO (Observer)
Alan Barnes – FCA (Observer)

Bank of England

Andrea Rosen (Chair)
Grace Greer
Tom Archer
Simon Dolan
Janet Yum
Matt Roberts-Sklar
Natan Misak
Yuliya Baranova

Apologies

Scott Creed – Lloyds Bank
Victoria Worsfold – Surrey Heath Council
Romain Dumas – UBS