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The consultation, entitled The Financial Services Bill: the Financial Policy Committee’s macro-prudential tools, sets out the proposed tools that it will be able to use to address systemic risks to the UK financial system. These include:
Financial Secretary to the Treasury, Greg Clark said:
“This Government is committed to reforming the failed system of financial regulation.
“In establishing the Financial Policy Committee, the Government is creating a strong, macro-prudential authority that will identify and address potential risks to stability in the financial system. But to be effective it must have the appropriate tools.
“Today we are consulting on our proposals for what those tools should be.”
The creation of the Financial Policy Committee as a strong, macro-prudential authority within the Bank of England is a key element of the Government’s reforms to the UK’s system of financial regulation, which will be enacted by the Financial Services Bill.
Even when firms are considered stable on an individual basis, the aggregate behaviour of firms can seriously damage the stability of the financial system. It will be the responsibility of the Committee to oversee the system as a whole, identify potential risks to its stability and take concerted action to address them.
In order to address systemic risks to the UK financial system, it will have broad powers of recommendation and a power to issue directions to the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), using macro-prudential tools set out by the Treasury in secondary legislation.
The consultation being launched today is based on the recommendations made to the Government by the interim Financial Policy Committee.