Citation and Commencement

1. —(1) This Order may be cited as the Bank of England Act 1998 (Macro-prudential Measures) (No.2) Order 2015.

(2) Articles 1 to 3, 4(a), 4(c) to 4(d) and 5 come into force on 6th April 2015.

(3) Article 4(b) comes into force on 1st January 2019.

Interpretation

2. —(1) In this Order—

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“ Common Equity Tier 1 capital ” has the meaning given by Article 50 of the capital requirements regulation;

“ consolidated basis ” means, in relation to a measure, on the basis that the undertaking to which the measure applies and one or more other undertakings are to be treated as a single undertaking;

“ cost benefit analysis ” means—

“ countercyclical capital buffer rate ” means any of the rates that UK banks and investment firms must apply to calculate their institution-specific countercyclical capital buffer;

“ Financial Policy Committee ” has the meaning given by section 9B of the Bank of England Act 1998 ;

“ G-SII ” means a global systemically important institution, as identified by the PRA pursuant to Part 4 of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014 ;

“ G-SII additional leverage ratio ” means a leverage ratio calculated by reference to the rate of the G-SII buffer which the PRA requires a G-SII to maintain;

“ G-SII buffer ” has the meaning given in regulation 2 of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014;

“holding company” means a financial holding company or a mixed financial holding company;

“ individual basis ” in relation to a macro-prudential measure applicable to an institution, means the application of that measure in respect of that institution only;

“ institution-specific countercyclical capital buffer ” has the meaning given in regulation 2 of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014;

“ investment firm ” has the meaning given by section 424A of the Financial Services and Markets Act 2000;

“ leverage ratio ” means an institution's Tier 1 capital divided by its total exposure measure, with this ratio expressed as a percentage;

“O-SII additional leverage ratio” means a leverage ratio calculated by reference to the rate of the O-SII buffers which the PRA requires a relevant O-SII to maintain pursuant to Part 5ZA of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014;

“O-SII buffer” has the meaning given by regulation 34 of the Capital Requirements (Capital Buffers and Macro-prudential Measure) Regulations 2014;

“ PRA ” means the Prudential Regulation Authority;

“ PRA-authorised person ” has the meaning given by section 2B of the Financial Services and Markets Act 2000 ;

“relevant O-SII has the meaning given in regulation 34 of the Capital Requirements (Capital Buffers and Macro-prudential Measures) Regulations 2014;

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“ Tier 1 capital ” has the meaning given by Article 25 of the capital requirements regulation;

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“ UK bank ” means a UK institution which has permission under Part 4A of the Financial Services and Markets Act 2000 to carry on the regulated activity of accepting deposits, but excludes—

“ UK institution ” means an institution which is established in the United Kingdom and is incorporated, or formed under the law of any part of the United Kingdom; and

“ UK investment firm ” means a UK institution which—

(2) Subject to article 4(4), “total exposure measure” has the meaning given in rules made by the PRA as amended from time to time.

Macro-prudential measures

3.—(1) Subject to paragraph (2), each of the measures set out in article 4 may be applied on, or by reference to, an individual basis or a consolidated basis.

(2) Where a measure set out in article 4(1)(a) or (d) is applied to the holding company of a UK bank or of a UK investment firm, the measure may only be applied to that holding company on, or by reference to, a consolidated basis.

Macro-prudential measures

4. —(1) For the purposes of section 9H(1) and 9L of the Bank of England Act 1998, the following measures (and any measures falling within a listed measure) are prescribed in relation to the PRA—

(a) a measure to require UK banks , or their holding companies, and UK investment firms , or their holding companies, to hold sufficient Tier 1 capital to satisfy a minimum leverage ratio specified by the Financial Policy Committee;

(b) a measure to secure that relevant O-SIIs ordinarily hold sufficient Tier 1 capital to satisfy an O-SII additional leverage ratio specified by the Financial Policy Committee;

(c) a measure to secure that G-SIIs ordinarily hold sufficient Tier 1 capital to satisfy a G-SII additional leverage ratio specified by the Financial Policy Committee;

(d) a measure to secure that UK banks , or their holding companies, and UK investment firms , or their holding companies, ordinarily hold sufficient Tier 1 capital to satisfy a countercyclical leverage ratio buffer specified by the Financial Policy Committee.

(2) The Financial Policy Committee may also specify a minimum proportion of Common Equity Tier 1 capital that shall be held in relation to a measure specified in paragraph (1).

(3) The Financial Policy Committee may include in a direction relating to the countercyclical leverage ratio buffer a method of calculating the countercyclical leverage ratio buffer by reference to the prevailing countercyclical capital buffer rates.

(4) The Financial Policy Committee may include, in a direction relating to any of the measures specified in paragraph (1), specifications as to how the total exposure measure is to be determined for the purposes of that measure.

Procedural requirements

5. —(1) Paragraph (2) applies if—

(a) the Financial Policy Committee has given a direction to the PRA under section 9H of the Bank of England Act 1998 which specifies a value for a counter-cyclical leverage ratio buffer, and which includes a method of calculating the value of the countercyclical leverage ratio buffer by reference to the prevailing countercyclical capital buffer rates pursuant to paragraph 4(3) (“the first direction”);

(b) the Financial Policy Committee subsequently revokes the first direction; and

(c) within a reasonable period after the revocation of the first direction, the Financial Policy Committee gives another direction to the PRA under section 9H of the Bank of England Act 1998(“the subsequent direction”) which is in substance identical to the first direction except in relation to the value specified in the direction.

(2) To the extent that the PRA is implementing the subsequent direction by way of rules pursuant to Part 9A or section 192XA of the Financial Services and Markets Act—

(a) sections 138J and 138K of the Financial Services and Markets Act 2000 do not apply; and

(b) the PRA must undertake a cost benefit analysis of the measure and publish it at the same time as it publishes the rules which give effect to the subsequent direction.

Review

6.—(1) The Treasury must from time to time—

(a) carry out a review of the regulatory provision contained in this Order, and

(b) publish a report setting out the conclusions of the review.

(2) The first report must be published before the end of the period of five years beginning with the day on which this article comes into force.

(3) Subsequent reports must be published at intervals not exceeding five years.

(4)Section 30(4) of the Small Business, Enterprise and Employment Act 2015 requires that a report published under this article must, in particular—

(a) set out the objectives intended to be achieved by the regulatory provision referred to in paragraph (1)(a);

(b) assess the extent to which those objectives are achieved;

(c) assess whether those objectives remain appropriate; and

(d) if those objectives remain appropriate, assess the extent to which they could be achieved in a way which involves less onerous regulatory provision.

(5) In this article, “regulatory provision” has the meaning given in sections 28 to 32 of the Small Business, Enterprise and Employment Act 2015 (see section 32 of that Act).