Seventh meeting of the PRA and FCA’s joint Climate Financial Risk Forum

The FCA and PRA hosted the seventh meeting of the CFRF in July 2021.

Since the last Forum in March, the working group chairs, members and secretariat have been progressing their respective topics of risk management, scenario analysis, disclosure and innovation, while also further developing the cross-cutting workstream on climate data and metrics. The Forum discussed the progress made by each working group to date, including outputs for Session 2 (July 2020 – December 2021), with a launch event being planned at or around the 2021 United Nations Climate Change Conference (COP26).

Members discussed the challenges facing the financial services industry and particular sectors in relation to climate-related financial risks. The discussion also focussed on potential future areas of focus for the CFRF. 

The next meeting will take place in October 2021, where working group outputs will be signed off prior to publication at an online launch event which will coincide with COP26.



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Banknote auction raises £237,040 for charity

The auction was held by Spink on 15 July with our Chief Cashier, Sarah John, opening the bidding on the first lot. 

The auction raised £237,040 for three charities – akt, Childline (a service provided by NSPCC) and Shelter. A total of 150 lots were auctioned, and the highest bid for a single note was £13,000 – the Turing £50 with serial number AA01 000005. This was also the highest amount bid in the auction, followed by £10,000 bid for a full uncut sheet of 40 £50 notes.

Sarah John, Chief Cashier, said: “I am delighted that the auction of Turing £50 notes raised over £237,000 for three fantastic charities. The Bank has a long history of charitable giving and that feels even more important in these unprecedented and challenging times which continue for the charitable sector.”

Our charity and community programme is a key part of our inclusion agenda and we encourage colleagues to support the causes that they care about. akt was nominated by a member of Notes Directorate staff in conjunction with our LGBT+ staff network. Childline and Shelter are the Bank’s 2020/21 charities.

We are proud that our £50 note features Alan Turing and that the three charities to benefit from the £50 auction will support the LGBTQ+ community in different ways. The money raised will be used by the charities through the services they provide across the UK. akt directly supports youth homelessness in the LGBTQ+ community. Childline (provided by NSPCC) helps children through whatever issue they are concerned about, which includes gender identity and sexuality. Shelter has released research showing that 40% of gay or lesbian people, and 49% of bisexual people are impacted by the housing emergency in Britain, compared with 32% of heterosexual people. 

akt is the national lgbtq+ youth homelessness charity, providing safe homes and better futures for lgbtq+ young people. Almost one quarter of all young people facing or experiencing homelessness identify as LGBTQ+, and 77 per cent of those cite rejection or abuse from their families as what has led them to being so. The charity was set up in Manchester in 1989 by straight ally and former foster carer Cath Hall, and a group of founding members, and has since opened its doors in London, Newcastle and Bristol. In 30 years, akt has provided over 250,000 nights off the street and supported over 50,000 lgbtq+ young people at risk of or experiencing homelessness.

Carrie Reiners, Deputy Chief Executive of akt, said: “We are delighted to be one of the charities linked to this unique and historic event with the Bank of England to the launch of the new £50 note. Last year akt saw a 71% increase in footfall into our service from young LGBTQ+ young people facing homelessness and abuse from unsupportive homes.

“As the country emerges from lockdown, akt continues to provide safe accommodation and support to even greater numbers of 16–25-year-olds across the UK from the LGBTQ+ community.

“We provide safe emergency accommodation for a young person following a period of homelessness or abuse at home simply for being who they are.  Along with a safe place to stay, our emergency support packs provide top-up credit for mobile phones, food and incidentals until a longer-term solution can be found. Young people will also work one-to-to one with a dedicated member of our services team to build the resilience and skills needed to create a sustainable path to independence.”

The NSPCC (National Society for the Prevention of Cruelty to Children) is a leading children’s charity working hard to prevent child abuse across the UK and Channel Islands. They do this by providing expert support to children and young people via their Childline counselling service, adult helpline, direct services and in collaboration with schools and local campaigns.

The NSPCC’s Childline counselling service provides a safe, confidential place for children and young people, whatever their worry, whenever they need help. They can contact Childline 24 hours a day, 7 days a week, 365 days a year.

Childline’s dedicated volunteers delivered more than 200,000 counselling sessions with children and young people in 2020/21, including more than 70,000 on mental health. Childline has also delivered over 125,000 counselling session on gender identity and sexuality since records began.

The service has never been more important as a source of support, with thousands of young people turning to the service over the past year about a range of issues including mental health, abuse, and gender and sexuality.

Childline also has a huge online community where children can get support from their peers on message-boards and use expert resources to help them through any issue they are concerned about.

Shaun Friel, Childline Director said: “We’d like to thank the Bank of England for the amazing amount of money that has been raised for the NSPCC’s Childline service through their charity banknote auction.

“We know that for many young people, the pandemic left them feeling cut off from their usual support networks, so it is vital that Childline has been there to listen as they attempted to navigate the closure of schools, the introduction and easing of lockdowns, concerns about the COVID-19 and social isolation.

“The money raised from this auction will enable our trained volunteers to continue to be here for those children who may be struggling and feel like they have nowhere else to turn.”

Shelter works to support the more than 17 million people in Britain who are now impacted by the housing emergency, and homelessness, which has doubled in the last decade. Shelter exists to defend the right to a safe home and fight the devastating impact the housing emergency has on people and society. The charity believes that a safe home is a fundamental need, which is why their frontline services are there to provide expert help and advice to people 365 days a year. Through their campaigns Shelter works to provide lasting change to make sure that one day no-one has to turn to them for help. 

Polly Neate, Chief Executive of Shelter, said: “We are delighted to have been chosen as one of the charity beneficiaries from this auction and it is a huge privilege for us to be one of the Bank’s charities of the year for 2020/21. With millions of people denied the right to a safe home we’re very grateful for the support of partners like the Bank of England to help us in the fight for home. The funds raised from this event will help us to provide advice, support and legal services to those who need it most, allowing us to be there for people and families when they have nowhere else to turn. Thank you for your support.”


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July 2021 Resolution publications | Bank of England

News release

The Bank of England has today published a statement from Dave Ramsden, which accompanies two Resolution publications: a Consultation Paper reviewing the Bank’s approach to setting a minimum requirement for own funds and eligible liabilities (MREL); and an Operational Guide on executing bail-in.

These publications build on the progress made to develop the UK resolution regime over the last decade, and represent the latest stage of development of what is an increasingly mature regime. 

The Consultation Paper is the second stage of the MREL Review and sets out the Bank’s proposed changes to its MREL framework. It follows on from a first stage Discussion Paper issued by the Bank in December 2020. The feedback and ideas gathered from stakeholders have informed the Bank’s thinking on the proposals presented in the Consultation Paper. 

The second publication is an Operational Guide on how the Bank might execute a bail-in, alongside draft template legal instruments it might make. It is intended to increase awareness and understanding of the actions that may take place as part of a bail-in resolution in the United Kingdom, and to enhance the transparency and credibility of the tool.

Notes for editors

  1. The Bank of England, as the UK resolution authority, is responsible for taking action to manage the failure of certain financial institutions – including UK-headquartered banking groups and UK-incorporated banks and building societies (together, banks) –  a process known as ‘resolution’. Resolution allows the shareholders and unsecured creditors of failed banks to be fully exposed to losses, while ensuring the critical functions of the bank can continue. Resolution reduces the risks to depositors, the financial system, and public funds that could arise due to the failure of a bank.
  2. The minimum requirement for own funds and eligible liabilities (MREL) is a minimum requirement for banks to maintain equity and eligible debt so that they can be ‘bailed in’ should a bank fail. The purpose of MREL is to help ensure that when banks fail the resolution authority can use these financial resources to absorb losses and recapitalise the continuing business. As a result, MREL is a critical element of an effective resolution regime.
  3. The Bank reaffirmed in June 2018 that it would review the calibration of MREL and the final compliance date, prior to setting end-state MRELs, having particular regard to any intervening changes in the UK regulatory framework as well as banks’ experience in issuing liabilities to meet their interim MRELs. 


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Statement from Dave Ramsden: July 2021 Resolution publications

To realise the benefits to growth and competition from financial stability, firms of all sizes need to be ‘resolvable’: able to fail in an orderly manner with investors, not the public purse, bearing losses. The UK’s resolution regime is built on these principles. The absence of a credible resolution regime during the 2007-09 Global Financial Crisis (GFC) meant that the UK government had to step in, injecting public money to the tune of £137bn to stabilise the financial sector, and that the financial system acted as an amplifier, intensifying the UK economic downturn at great economic and fiscal cost. The changes that the Bank of England and other authorities, working with the banks themselves, have introduced since the GFC mean that the UK is now much better placed to deal with the failure of one of its banks. We have implemented changes to remove the ‘Too Big to Fail’ implicit subsidy enjoyed by bigger banks and set out expectations for how banks should make themselves resolvable, in line with the commitment that we made to Parliament.

Managing the failure of a bank of any size is unlikely ever to be a smooth process. But the UK resolution regime provides more options to act when banks fail, keep critical banking services operating or pay out depositors, and so improve prospects for financial stability.

We have the necessary tools and legislative frameworks to underpin the UK’s resolution regime and have developed policy to set out the outcomes that firms must achieve if they are to overcome the major barriers to resolution. This year, we are also preparing to enter the first cycle of the Resolvability Assessment Framework (RAF). The RAF places responsibility on the banks to demonstrate both to the Bank and in public their preparedness for a resolution: a key milestone in our commitment to Parliament that major UK banks should be resolvable by 2022. But resolvability is not a static concept, and firms will need to work to maintain and improve their resolvability on an ongoing basis.

Having a resolution regime that is fit for purpose and ready to be used supports a more dynamic financial sector. The ability for banks to leave the market in an orderly way supports the PRA’s approach to authorisation. Since its creation in 2013, the PRA has authorised 27 new domestic banks. The Bank’s resolution regime and the PRA approach to authorisation work together to lower barriers to entry and exit and thereby support effective competition in the banking sector.

There is still further work to do to address resolvability risks in the wider financial sector. The UK is making good progress developing modified insolvency and resolution frameworks for non-banks. HM Treasury has recently consulted on a proposal to enhance the UK’s existing resolution framework for Central Counterparties; and has signalled an intention to introduce a specific resolution regime for insurers in due course to supplement proposed enhancements to the insurer insolvency arrangements. HM Treasury has also introduced this year a bespoke insolvency regime for payment and e-money institutions, helping to ensure that arrangements are in place so that innovations can take place safely.

Today the Bank is issuing two resolution publications: a Consultation Paper reviewing our approach to setting a minimum requirement for own funds and eligible liabilities (MREL); and an Operational Guide on executing bail-in. These publications build on the progress made over the last decade, and represent the latest stage of development of what is an increasingly mature regime. As I set out in February 2021footnote [1], I see the UK resolution regime as built around four robust and coherent principles: credibility and transparency in its design; and flexibility and proportionality in its implementation. Both the publications today help to reflect these principles in action. The Consultation Paper on the MREL Review demonstrates our commitment to implementing our policies in a flexible and proportionate way, and the Operational Guide on executing bail-in demonstrates our commitment to providing more transparency and detail to the industry and the market.

The Consultation Paper on the MREL Review proposes a new, longer and more gradual transitional path for firms growing into MREL requirements. The Bank sets MREL to achieve orderly resolution, with investors not taxpayers bearing loss, in accordance with our responsibilities and objectives. When a bank fails, the resolution authority can use the financial resources provided by MREL to absorb losses and recapitalise the continuing business and support its restructuring. But we recognise the potential costs and challenges for growing firms issuing MREL. In this context, we are consulting on smoothing the transition to our balance sheet thresholds for firms as they grow and move from a depositor pay out to a continuity strategy. Making it easier for firms to grow into MREL responds directly to firms’ concerns about barriers to growth created by the step up in MREL requirements as firms expand their balance sheets. The proposals for an extended transition path are proportionate in implementation and directly respond to stakeholder feedback arguing for a ‘smoother climb’. They are inherently flexible and agile as they allow for a further extension if unforeseen circumstances demand it. And they enhance the transparency of the regime by being clearer when MREL requirements may start to apply to firms individually.

It is important that we only set MREL for firms where it is likely to be needed if an institution did fail. MREL is for GSIBs, DSIBs and other banks whose entry into insolvency would be too disruptive for banking customers and services. Recent developments in payments technology and innovations might change how we would approach resolving smaller firms with large numbers of transactional accounts. We will work with the industry, FSCS, FCA and PRA to review and develop alternative processes which could avoid the disruption to banking customers and services caused by insolvency. This could allow us to significantly raise or remove the current transactional accounts threshold for MREL requirements if successful.

The PRA’s revised approach to new and growing banks, and its proposed “Strong and Simple” approach to the regulation of smaller banks, reflect the Bank’s commitment to maintaining resilience that supports established financial services and new innovations and thinking openly about how the rules of the road can be fitted to changing circumstances. Alongside these changes, HM Treasury considers that the Bank’s proposed changes to the framework for setting MREL should ensure that the Bank’s MREL policy, including the calibration of end-state MRELs, continue to provide an appropriate degree of protection of public funds while ensuring a proportionate approach for growing firms.

We have also clarified our approach to legacy MREL instruments. This is in line with ongoing work to deliver the RAF to ensure that firms’ resources can bear loss, and does not disturb the fair allocation of those losses in a failure. Having a fair allocation of losses is a key protection for investors in financial instruments in resolution.

Ensuring that MREL is in place is a necessary, but not sufficient, condition for an effective resolution which relies on a ’bail-in’ rather than publicly funded ’bail-outs’. It also needs to be possible for us to execute the bail-in in practice, in what is likely to be a highly complex transaction involving multiple parties. Our second publication today provides a more detailed operational guide on how the Bank might execute a bail-in, alongside the draft ‘base’ or ‘illustrative’ legal instruments it might make. It is intended to increase awareness and understanding of the actions that may take place as part of a bail-in resolution in the United Kingdom, and to enhance the transparency and credibility of the tool. Publication of this guide reflects the work that the Bank has been doing to improve our own capacity and readiness, alongside the work that we have been asking firms to do. Any bail-in transaction is likely to require a tailored approach depending on the facts and circumstances of the particular case – and so I would emphasise the intentional choice of words in ‘guide’ rather than ‘manual’ in today’s publication.

The resolution regime is maturing and has made great strides since the Global Financial Crisis. We consider that the key features of that regime- who pays for losses of a failed bank and how many resources are needed to support a resolution- are in place. Today’s publications represent a further step towards maturity and towards our goals of ending Too Big to Fail and protecting banking customers from disruption if their bank were to fail. But there is still more work to be done and further improvements that can be made, including in response to feedback from market participants and in response to market and technological developments. We remain committed to refining and provide greater clarity on our policy approach in an open, nimble and agile way, and to consistently applying our principles of credibility, transparency, flexibility and proportionality.

With that in mind, I would like to end by personally thanking all those people in regulated firms, advisors, regulatory and government bodies in the UK and abroad, universities, and other institutions who have contributed to supporting our work on resolution. As Andrew Bailey recently highlighted in the foreword to the “New Chapter for Financial Services”footnote [2], the UK has a long history as an open, global financial centre, at the forefront of innovation. This is a globally shared public good, which is dependent on the resilience and safety of the UK financial system. We look forward to continuing work with a wide range of people across the industry and regulatory community and beyond to maintain the resilience of a financial system that continues to serve the people of the United Kingdom well.


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The FCA and the Bank of England encourage market participants in a switch to RFRs in the LIBOR cross-currency swaps market from 21 September

A key milestone recommended by the Working Group on Sterling Risk-Free Reference Rates (‘the Working Group’) is to cease initiation of new cross-currency derivatives with a LIBOR-linked sterling leg expiring after 2021, during Q2/Q3 2021, other than for risk management of existing positions. The PRA and FCA expect firms to meet the Working Group’s milestones as set out in the recent ‘Dear CEO’ letter sent to regulated firms. 

The Dear CEO letter also noted the PRA and FCA’s expectation that firms further the adoption of RFRs in non-sterling LIBOR currencies, including to cease new use of USD LIBOR as soon as practicable and no later than the end of 2021, in line with the supervisory guidance issued by the US authorities.

On 13 July, the US CFTC’s Market Risk Advisory Committee (MRAC) formally recommended a series of ‘SOFR First’ initiatives in US dollar markets, beginning with interdealer swap markets on 26 July.  The MRAC recommendation also includes a subsequent step to replace use of LIBOR with RFRs in cross-currency swaps, identifying a potential date of 21 September.

In order to support markets in building the necessary liquidity to meet these milestones, the FCA and the Bank of England have encouraged UK market participants to support the US-led ‘SOFR First’ initiative on 26 July and have also been engaged with authorities across LIBOR jurisdictions to build the necessary consensus around the subsequent initiative for cross-currency swaps in September. Support for this has also been expressed publicly by the US Alternative Reference Rates Committee and National Working Group on Swiss Franc Reference Rates.

In light of the above, the FCA has engaged with UK market participants, including liquidity providers and interdealer brokers (IDBs), to determine support for a change in the quoting conventions of LIBOR cross-currency swaps in the interdealer market on the proposed date of 21 September.

An FCA survey of UK market participants identified strong support for a change in the interdealer quoting convention, which would see RFRs rather than LIBOR become the default price from 21 September 2021.

The FCA and the Bank of England therefore support and encourage all participants in the LIBOR cross-currency swaps market to take the steps necessary to prepare for and implement these changes to market conventions on 21 September and shift liquidity away from LIBOR to RFRs. In the period leading up to 21 September, the FCA and the Bank of England will continue to engage with market participants and relevant international authorities to determine whether market conditions allow the switch to proceed smoothly.

Background & technical notes

This is an extension of the successful similar changes to the interdealer quoting conventions for linear sterling swaps during Q4 2020, and non-linear sterling derivatives in May 2021, and the upcoming SOFR First initiative on 26 July 2021. Extending this to cross-currency derivatives is intended to increase alignment in RFR markets and help to accelerate a reduction in new LIBOR exposures.

The proposed change will involve IDBs moving the primary basis of their pricing screens and curve construction for cross-currency swaps from LIBOR to RFRs. 

Specifically, the quoting conventions in the interdealer market for the GBP, CHF and JPY legs of cross-currency swaps would switch from LIBOR to SONIA, SARON and TONA respectively from 21 September.

Cross-currency swaps with a USD leg would switch from USD LIBOR to SOFR from 21 September when paired with another LIBOR currency i.e. GBP/USD would switch to SONIA/SOFR, CHF/USD to SARON/SOFR and USD/JPY to SOFR/TONA. 

If the USD leg is paired with a non-LIBOR currency, or IBOR, then in line with the US authorities’ guidance on the timing for ceasing new use of USD LIBOR, the USD leg would switch to SOFR as soon as is practicable from 21 September and no later than the end of 2021.

FCA survey results

Total respondents: 19

Q1. Do you support a ‘RFR-First’ Convention Switch for the LIBOR cross-currency swaps market? Yes / No.

100% of respondents selected ‘Yes’ to this question.

Q2. If you answered Q1 with Yes: Do you think a switch on 21 September 2021 would be an appropriate date for the interdealer LIBOR cross-currency swaps market?

95% of respondents who selected ‘Yes’ to the first question supported the 21 September date. One market participant was supportive for all LIBOR currencies except one. There was also one abstention.


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Bank of England publishes Review of Ethnic Diversity and Inclusion at the Bank

News release

The Bank’s Court – which comprises the Bank’s Governors and non-executive directors – commissioned a review of ethnic diversity and inclusion at the Bank in September 2020, chaired by Diana Noble, a Non-Executive Director of Court. The Review was launched in response to feedback from the Bank’s Ethnic Minorities Network (BEEM) and in recognition that the Bank had not yet made sufficient progress on the important issue of ethnic diversity and inclusion.

The Review had two overarching aims: to ensure the Bank is on the right path, with momentum, towards attracting and retaining an ethnically diverse workforce at all levels; and for the Bank to be a BAME employer of choice.

The decision to conduct the Review was prompted by an awareness on the part of the Bank that it was not moving far or fast enough on diversity and inclusion. However, it was crystallised by events of last summer. The murder of George Floyd in May 2020 stimulated discussions on race and ethnicity, causing individuals and institutions to reflect in a deeper way than before. The Governor and Court wanted to identify and better understand where the Bank was falling short of its objectives and to design more effective actions in response. It also ties in with the Governor’s aspirations to create a more inclusive Bank.

As a first step towards building a more diverse workforce, we have set ourselves new and stretching targets to increase ethnic diversity. By setting targets, the Bank can be held accountable for its actions.

Commenting on the Review, Diana Noble, non-Executive Director of Court and Chair of the Review, said:

“I have consulted widely in my role as Review Chair over the past nine months. And I am left with an optimism that the great people across the Bank share Court’s vision of a fully diverse and inclusive Bank that they are proud to work for. And that they will want to play their own part in ensuring the Recommendations from the Review are implemented and in time become just the way the Bank thinks and acts.”

Bank of England Governor Andrew Bailey said:

“Making the Bank a genuinely inclusive workplace is integral to getting the day job right. We need people to bring their different experiences to the table, and to represent fully the people of this country. To reflect this, we have made achieving a fully diverse and inclusive Bank one of our seven strategic priorities.

We all have a part to play in achieving this aim. The experience of colleagues with different ethnic backgrounds has not reflected the kind of institution we want to be. And I, alongside my fellow Governors and Court, will lead the changes we need to make and implement the Review’s recommendations in full. I am confident we can make this institution an organisation where everyone can thrive and feel proud.”

The Review consulted the Bank’s Ethnic Minorities Network (BEEM) throughout, which offered both advice and challenge on the findings and recommendations. Commenting on the Review, the co-chairs of BEEM said:

“The Bank of England Ethnic Minorities Network (BEEM) welcomes the Court Review of Ethnic Diversity and Inclusion, the findings of which were not news to minority ethnic colleagues. We support the Bank in its transparency and willingness to face up to and tackle these issues head-on, through a concerted effort and commitment from the Bank leadership to fully implement the recommendations agreed with Court. It is so important for a public organisation like the Bank to take the lead in becoming the organisation it aspires to be for the benefit of all its staff.”


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