News release

The Bank of England (the Bank) is today consulting on proposals to introduce a set of Fundamental Rules for UK Financial Market Infrastructures (FMIs), which are essential to the smooth and safe operation of the UK financial system and broader economy. It has also published an updated approach document to set out how it supervises these critical firms.

The overarching aim of these publications is to increase transparency by clearly setting out the Bank’s expectations of FMIs and how it will act as FMI supervisor. FMIs the Bank supervises are central counterparties (CCPs), central securities depositories (CSDs), recognised payment systems operators (RPSOs) and specified service providers (SSPs). Both documents highlight the evolution of the Bank’s regulatory and supervisory regime across all FMI types. The Fundamental Rules will increase the effectiveness of the Bank’s supervision of these critical parts of the financial system, supporting UK financial stability and the UK economy more broadly.

Sarah Breeden, Deputy Governor for Financial Stability, said:

“The Fundamental Rules are the first use of the Bank’s new rulemaking powers for CCPs and CSDs. Building on the strong foundations we already have, we’re using this opportunity to be clear on what we expect from the firms we supervise. Together with our updated approach to supervision, it marks the next stage of the Bank designing a nimble, effective and forward-looking regulatory regime, with more to come in the near future.” 

Fundamental Rules consultation

The Bank’s consultation on Fundamental Rules is the first use of the Bank’s new power to make legally binding rules for UK CCPs and CSDs. They will also apply to Bank-regulated UK payments systems and specified service providers.

The rules will provide greater clarity on the Bank’s desired outcomes across areas such as governance, financial and operational resilience, and consideration of FMIs’ impacts on the broader financial system. The rules will also reinforce the Bank’s commitment to international standards of FMI regulation.

By setting out the high-level outcomes the Bank is seeking, these proposals support the Bank’s new secondary objective to facilitate innovation in FMI services. They have also been subject to a cost benefit analysis that has been scrutinised by the independent cost benefit analysis panel that provides advice to the Bank and the PRA.

Approach to Supervision

The supervisory approach document sets out how the Bank will supervise FMIs. This additional clarity will help effective supervision by ensuring FMIs have a clear understanding of what the Bank seeks to achieve. The supervisory approach will continue to evolve and the Bank will periodically update its approach to reflect its priorities and any new developments.

Next steps

The Bank’s consultation on Fundamental Rules is open until 19 February 2025, and the Bank intends to engage with stakeholders during this period to gather a range of views on the proposals. The Bank will also engage with stakeholders in respect of the supervisory approach document in Q1 2025.

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News release

Today, the Prudential Regulation Authority (PRA) published consultation paper (CP) 15/24 proposing reforms to the UK Insurance Special Purpose Vehicle (UK ISPV) regulatory framework, through a combination of changes to the finalised PRA rules and policy materials also published today in policy statement (PS) 15/24 that will replace Solvency II assimilated law.

The proposed reforms are intended to enhance the safety and soundness of the insurance sector by making more diversified reinsurance capital available to cedants while also furthering the PRA’s secondary competitiveness and growth objective by making authorisation of UK ISPVs faster and easier. 

The proposals introduce a new accelerated pathway for certain UK ISPV applications (e.g. some types of catastrophe bonds) which meet the criteria set out in the PRA’s proposed new statement of policy – Approach to authorising and supervising UK insurance special purpose vehicles. Under the accelerated pathway, in collaboration with the Financial Conduct Authority (FCA), the PRA proposes to consider applications and, where satisfied, issue approvals within 10 working days (rather than the current 4–6-week process) of an application being submitted to the PRA and deemed complete.  In addition, the proposed reforms will make it easier for a wider range of current market practices to be undertaken in the UK, while also streamlining and speeding up the standard application and approval processes. The reforms will also clarify the PRA’s expectations of UK insurers who cede risks to Special Purpose Vehicles, wherever they are established.

Sam Woods the Deputy Governor for prudential regulation said:

‘These reforms will deliver a much faster turn-around time for approval of new Insurance Special Purpose Vehicles in the UK, supporting growth and competitiveness while maintaining safety and soundness.’

To help inform these proposals the PRA convened a number of discussions with industry, including a subject expert group, to gather a broad range of information and explore options for proposed reforms.  

Next steps

The PRA invites feedback on the proposals set out in this consultation and welcomes further discussion from stakeholders to help inform its final policy decisions. The consultation period closes on 14 February 2025. Please address any comments or enquiries to CP15_24@bankofengland.co.uk. The PRA proposes to publish final policy for firms in mid-2025.

The current requirements on UK ISPVs derive from a combination of the PRA’s final policy outlined in PS15/24 and UK legislation. The PRA is working actively with stakeholders to agree the most effective approach to introducing further reforms to the UK ISPV framework. 
The PRA is grateful for the input received to date and looks forward to further constructive engagement and feedback during the consultation period.

News release

The Bank of England is to hear from local people in Birmingham about the impact of the cost of living on their finances, as part of our Citizens’ Forum Programme which has been running across the UK since 2018.

The event is designed to gather information from local people, which will complement existing data and analysis, and help inform the Bank’s policy decisions.

Over recent years, the Bank has raised interest rates to slow down price rises, and inflation has now fallen to currently stand at 1.7% (as at November 2024) but is expected to increase to around 2½% by the end of this year. At the meeting of 7 November, the Monetary Policy Committee (MPC) felt it was appropriate to reduce Bank Rate to 4.75%).

Inflation is now just below the 2% target, and the MPC needs to make sure it stays close to that target sustainably, (by ensuring it doesn’t cut interest rates too quickly or by too much). But if the economy evolves as expected, it’s likely that interest rates will continue to fall gradually from here.

The event in Birmingham on Tuesday 10 December (5.30pm-8.00pm) will give attendees the opportunity to share their views with Bank officials, including Nathanaël (Nat) Benjamin, Executive Director for Financial Stability Strategy and Risk and a member of the Bank’s Financial Policy Committee (FPC). The FPC identifies and monitors risks that threaten the resilience of the UK financial system. He will be joined by staff from the Bank’s Agency for the West Midlands.  

Graeme Chaplin, the Bank’s Agent for the West Midlands said: “As the Governor has previously highlighted, there is great value for the Bank of England in hearing from local communities. It helps us understand the impact interest rates are having on people’s lives and what inflationary pressures we need to guard against.

We welcome views and questions from people in Birmingham about the cost of living or the actions the Bank is taking to keep inflation low and stable.”

The event will be chaired by Bridget Blow, non-executive director of English Netball and former Deputy Chair of Coventry Building Society.

Anyone aged over 18 is eligible to apply to attend which you can do via the Bank’s website before Wednesday 27 November when registration closes.

Refreshments will be provided and the Bank will make a payment of £25 to all attendees to cover expenses.

Monetary Policy Summary, November 2024

The Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. The MPC adopts a medium-term and forward-looking approach to determine the monetary stance required to achieve the inflation target sustainably.

At its meeting ending on 6 November 2024, the MPC voted by a majority of 8–1 to reduce Bank Rate by 0.25 percentage points, to 4.75%. One member preferred to maintain Bank Rate at 5%.

There has been continued progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly.

CPI inflation fell to 1.7% in September but is expected to increase to around 2½% by the end of the year as weakness in energy prices falls out of the annual comparison. Services consumer price inflation has declined to 4.9%. Annual private sector regular average weekly earnings growth has continued to fall but remained elevated at 4.8% in the three months to August. Headline GDP growth is expected to fall back to its recent underlying pace of around ¼% per quarter over the second half of this year. The MPC judges that the labour market continues to loosen, although it appears relatively tight by historical standards.

Monetary policy has been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis. The Committee’s deliberations have been supported by the consideration of a range of cases that could impact the evolution of inflation persistence. These three cases are set out further in the accompanying November Monetary Policy Report.

There remains significant uncertainty around the outlook for the labour market. Data are difficult to interpret and wage growth has been more elevated than usual relationships would predict. The impact of the Budget announcements on inflation will depend on the degree to and speed with which these higher costs pass through into prices, profit margins, wages and employment.

1: Before turning to its immediate policy decision, the Committee discussed: the international economy; monetary and financial conditions; demand and output; and supply, costs and prices. The latest data on these topics were set out in the accompanying November 2024 Monetary Policy Report.

2: The Committee discussed the near-term global risks and their potential impact on the inflation outlook in the United Kingdom. The balance of risks to global activity, particularly stemming from China and Germany, remained to the downside in the near term. Alongside that, there were upside risks to goods and commodity prices from greater trade fragmentation and adverse geopolitical developments, including from events in the Middle East.

3: Since the MPC’s previous meeting, the market-implied path for Bank Rate in the United Kingdom had shifted up materially. For the period prior to Autumn Budget 2024, market intelligence had attributed the modest upward moves in the market-implied path largely to international factors such as stronger-than-expected economic data in the United States. For the period around the time of the Budget, the upward shift had been more material. However, market pricing had continued to remain consistent with a 25 basis point reduction in Bank Rate at this MPC meeting.

13: Based on the collective steer from a wide range of indicators, the MPC judged that the labour market continued to ease but that it appeared relatively tight by historical standards. However, there was significant uncertainty around the labour market outlook and its impact on inflationary persistence. The combined effect of some policies announced in the Budget, particularly the increase in employer NICs and the NLW, was likely to increase the overall costs of employment. The net effect of this news on aggregate inflation would depend on the degree to and speed with which those costs would be transmitted into prices, wages, employment, or otherwise absorbed in profit margins or productivity growth. On the one hand, higher labour costs could constrain firms’ cash-flows if there was limited pass-through to pricing. This in turn could moderate wage growth and further loosen the labour market through reduced labour demand. On the other hand, the increase in labour costs could prove more inflationary if upward pressure on prices were passed on to consumers.

14: The Committee continued to monitor the accumulation of evidence from a broad range of indicators of inflation persistence, including evidence that could point to the three cases set out in the November Monetary Policy Report having begun to materialise. In the first case, most of the remaining persistence in inflation might dissipate quickly as pay and price-setting dynamics continued to normalise following the unwinding of the global shocks that drove up inflation. In the second case, a period of economic slack might be required to normalise these dynamics fully. In the third case, some inflationary persistence might reflect structural shifts in wage and price-setting behaviour.

15: In the November forecast, which was based on the second case, second-round effects in domestic prices and wages were expected to take somewhat longer to unwind than they did to emerge. The margin of slack that emerged later in the forecast period would act against those second-round effects, leading CPI inflation to fall back to around the 2% target in the medium term.

Minutes of the Meeting of the Court of Directors held on 19 September 2024

Present:

David Roberts, Chair

Andrew Bailey, Governor

Sarah Breeden, Deputy Governor – Financial Stability

Clare Lombardelli, Deputy Governor – Monetary Policy

Sir Dave Ramsden, Deputy Governor – Markets & Banking

Sam Woods, Deputy Governor – Prudential Regulation

Jonathan Bewes

Sabine Chalmers

Lord Jitesh Gadhia

Anne Glover

Sir Ron Kalifa

Diana Noble

Frances O’Grady

In attendance:

Ben Stimson, Chief Operating Officer

Apologies:

Tom Shropshire

Secretary:

Sebastian Walsh