Asked by: Lord Myners (Crossbench - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government whether any purchases made by the Bank of England this year under the quantitative easing arrangements have been of gilt-edged securities issued within less than one month of the Bank’s acquisition thereof.
Answered by Lord Agnew of Oulton
The Bank of England’s Asset Purchase Facility Fund, its subsidiary used to implement quantitative easing, has purchased gilt-edged securities within one month of their issuance in 2020. This is in line with the Facility’s public operating procedures which require that it does not offer to purchase gilts within one week of their issue by the UK Debt Management Office.
Asked by: Lord Myners (Crossbench - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government which (1) department, (2) executive agency, (3) board, (4) court, or (5) other body, is responsible for ensuring that the Bank of England’s independence is not compromised through the financing of UK Government debt.
Answered by Lord Agnew of Oulton
The Bank of England (the Bank) has statutory responsibilities for monetary policy and financial stability, and independence from the government to carry out these responsibilities as enshrined in the Bank of England Act (1998). The Bank is accountable to both the public and to Parliament, through scrutiny by the Treasury Committee.
The remit of the independent Monetary Policy Committee (MPC) is set by the Chancellor, and is reaffirmed annually through an exchange of open letters with the Governor of the Bank.
The separation of monetary and fiscal policy is a key pillar of the government’s macroeconomic framework. As such, the responsibility for financing the government’s needs was transferred from the Bank to the UK’s Debt Management Office (DMO), an executive agency of HM Treasury, in 1998. The Treasury sets the DMO’s objective for debt management independently of monetary policy.
Asked by: Lord Myners (Crossbench - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government whether they intend to review the effect of deteriorating credit quality on the (1) profits, and (2) capital generated to meet claims, of life insurance companies under the matching adjustment permitted by the Prudential Regulation Authority.
Answered by Lord Agnew of Oulton
Since the onset of the crisis caused by covid-19, the Government has been monitoring any impact of any deteriorating credit quality on the profits and capital generated to meet the claims of life insurance companies closely. We monitor developments in the profitability, liquidity and solvency of insurance companies, including the impact of credit quality on the matching adjustment and any resulting impact on these metrics. The Prudential Regulation Authority continually keeps the operation of the matching adjustment under review.
Asked by: Lord Myners (Crossbench - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government what action they plan to take to prevent credit insurers unilaterally withdrawing cover.
Answered by Lord Agnew of Oulton
The government is discussing with UK authorities, businesses and the insurance industry, the impact of COVID-19 on the trade credit insurance market.
As the Chancellor announced on Tuesday 17 March the government would do whatever it takes to get our nation through the impacts of COVID-19 and that he stands ready to announce further action wherever necessary.
Asked by: Lord Myners (Crossbench - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government whether they, or the Financial Conduct Authority, have taken any action to (1) monitor, or (2) issue guidance, to peer-to-peer lenders about whether new client inflows should be used to support previous borrowers experiencing financial difficulty and funded by earlier investors.
Answered by Lord Agnew of Oulton
The Government monitors the peer-to-peer lending sector on an ongoing basis and engages regularly with the Financial Conduct Authority (FCA), who are responsible for the regulation of the sector.
The FCA is operationally independent from Government. The second part of the question, as it relates to the FCA, has been passed on to the FCA. The FCA will reply directly to Lord Myners by letter, and a copy of the letter will be placed in the Library of the House.
Asked by: Lord Myners (Crossbench - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government whether they have issued any guidance (1) to fund managers on statements related to restricting redemptions of investments of open-ended funds, and (2) on whether fund managers may issue statements that fund investors will never be gated.
Answered by Lord Agnew of Oulton
The government is committed to ensuring that the UK has a robust framework for regulating financial services and that consumers are treated fairly. There are a range of existing rules in this area and there is work underway to address ‘liquidity mismatch’ in open-ended funds and to protect consumers.
Financial services firms are required to treat customers fairly under rules set by the Financial Conduct Authority (FCA), and the FCA is responsible for overseeing the conduct standards of financial services firms. There are already a number of rules on eligible assets, which aim to protect consumers. Such rules apply to both types of fund that can be sold to retail investors – UCITS and non-UCITS retail schemes. Additionally, in September, the FCA published a policy response to their consultation on illiquid assets and open-ended funds. This outlined new rules for certain structures that invest in illiquid assets, which will come into effect in September 2020. The new rules will include a requirement that non-UCITS retail schemes investing in inherently illiquid assets must suspend dealing where the independent valuer determines there is material uncertainty regarding the value of more than 20% of the fund’s assets. The FCA is also currently working with the Bank of England’s Financial Policy Committee to assess how funds’ redemption terms might be better aligned with the liquidity of their assets.
Fund suspensions can be a necessary safety feature which ensures that a fund is not forced to sell assets at a distressed market price, which would lead to further losses for end investors in the fund. FCA rules permit suspensions, which may last for as long as is necessary to protect the interests of the remaining investors in the fund.
Asked by: Lord Myners (Crossbench - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government whether they, or the Financial Conduct Authority, monitor whether trade receivables included in securitised bonds (1) reflect transactions completed, or (2) can also include transactions yet to be completed or documented by the two sides to the expected transaction; and whether they have discussed this with the Federal Financial Supervisory Authority in Germany.
Answered by Lord Agnew of Oulton
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) are responsible for monitoring risks in the UK securitisation market, in line with their statutory objectives.
In January 2019, the EU Securitisation Regulation (Regulation 2017/2407) became applicable in the United Kingdom. Consistent with this Regulation, the Government and the FCA expects that underlying exposures transferred to a securitisation vehicle, including trade receivables, contain obligations which are contractually binding and enforceable.
In trade receivable transactions, goods or services to which the credit claims refer may be delivered later and be deficient. Such a risk is often quantified as a matter of routine in securitisation transactions. The Government expects relevant market participants to conduct due diligence where required.
The FCA and the PRA apply a risk-based supervision of the securitisation market and can choose to undertake a thematic analysis of the market, including on trade receivables financing.
The FCA maintains bilateral relationships and collaborates effectively with the regulatory and supervisory authorities of other countries, including Germany.
Asked by: Lord Myners (Crossbench - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government whether it is their policy to use counter cyclical capital adjustments for banks to enhance resilience in order to cope with economic downturns; and whether they mandate regular stress tests.
Answered by Lord Agnew of Oulton
The Financial Policy Committee (FPC) of the Bank of England is prescribed the power to set the countercyclical capital buffer (CCyB) rate for the United Kingdom. The FPC has set out its approach to the use of the CCyB in a Policy Statement published in April 2016 on the Bank of England website. As part of a wider package of measures announced by the Bank of England’s policy committees in response to the economic shock of Covid-19, the FPC reduced the UK CCyB to 0% on 11 March. This will support up to £190 billion of bank lending to businesses.
The Bank of England undertakes an annual stress test of major UK banks to examine the potential impact of a hypothetical adverse scenario on the resilience of the banking system. The 2019 stress test showed the banking system to be resilient to a scenario encompassing deep simultaneous recessions in the UK and global economies that are more severe overall than the global financial crisis, combined with large falls in asset prices and a separate stress of misconduct costs. On 20 March the Bank of England announced it would cancel the 2020 stress test to ensure lenders can focus on meeting the needs of UK households and businesses through the economic shock caused by Covid-19.
Asked by: Lord Myners (Crossbench - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government whether the recent equity market falls have surpassed stress test levels used to determine the capital adequacy of central clearing houses supervised by the Financial Conduct Authority.
Answered by Lord Agnew of Oulton
Central clearing houses, or central counterparties (CCPs), are financial institutions firms use to manage some of the risks arising from traded markets. UK CCPs are subject to many requirements to manage financial risk, including maintaining risk models to quantify the level of financial resources they need to operate safely. As such, it is right that the level of resource held by CCPs is subject to rigorous and frequent internal stress tests, as set out in the legislation that governs them. These stress tests assess the resilience of a CCP in extreme but plausible market conditions. Furthermore, UK CCPs remain subject to EU-wide stress tests during the Transition Period.
The Bank of England supervises UK CCPs as part of its financial stability objective. However, it is not possible to publicly disclose specific quantitative details on individual firm’s stress tests because this is firm sensitive information.
Asked by: Lord Myners (Crossbench - Life peer)
Question to the HM Treasury:
To ask Her Majesty's Government what plans they have to issue guidance to (1) unit trust, and (2) open-ended investment company, managers to limit fund redemptions instead of obliging fund managers to be forced sellers of shares and bonds.
Answered by Lord Agnew of Oulton
The government is committed to ensuring that the UK has a robust framework for regulating financial services and that consumers are treated fairly. There are a range of existing rules in this area and there is work underway to address ‘liquidity mismatch’ in open-ended funds and to protect consumers.
Financial services firms are required to treat customers fairly under rules set by the Financial Conduct Authority (FCA), and the FCA is responsible for overseeing the conduct standards of financial services firms. There are already a number of rules on eligible assets, which aim to protect consumers. Such rules apply to both types of fund that can be sold to retail investors – UCITS and non-UCITS retail schemes. Additionally, in September, the FCA published a policy response to their consultation on illiquid assets and open-ended funds. This outlined new rules for certain structures that invest in illiquid assets, which will come into effect in September 2020. The new rules will include a requirement that non-UCITS retail schemes investing in inherently illiquid assets must suspend dealing where the independent valuer determines there is material uncertainty regarding the value of more than 20% of the fund’s assets. The FCA is also currently working with the Bank of England’s Financial Policy Committee to assess how funds’ redemption terms might be better aligned with the liquidity of their assets.
Fund suspensions can be a necessary safety feature which ensures that a fund is not forced to sell assets at a distressed market price, which would lead to further losses for end investors in the fund. FCA rules permit suspensions, which may last for as long as is necessary to protect the interests of the remaining investors in the fund.