Bank Levy: amending the definition of high quality liquid assets and high quality securities
Published 26 May 2016
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Who is likely to be affected
UK banks, banking groups and building societies, foreign banking groups operating in the UK through permanent establishments or subsidiaries and UK banks and banking sub groups in non-banking groups.
General description of the measure
In order to align with regulatory principles to support banks and building societies to hold assets qualifying for the purpose of regulatory liquidity buffers, the current legislation provides relief for high quality liquid assets (HQLA) as defined by the Prudential Regulation Authorities’ (PRA) handbook. The PRA’s ‘Prudential Sourcebook for Banks, Building Societies and Investment Firms (BIPRU) 12’ definition was changed in October 2015 to introduce new Basel III liquidity coverage ratios for banks known as Capital Requirements Directive IV (CRD IV). Banks and building societies have been using these new CRD IV definitions from 1 October 2015, and from 1 October 2016 they will no longer use the old BIPRU 12 definitions.
This amendment will allow relief for all Level 1 type assets. This will maintain the existing policy for giving relief for assets types that the PRA mandates banks must hold.
Policy objective
This measure updates the definitions used to determine which assets qualify as HQLA and high quality securities within the Bank Levy legislation to reflect regulatory changes affecting bank and building societies.
The amendment to the definition to high quality securities is required as a consequence of changes to the PRA’s definition of liquid assets. There is no change to existing policy by updating this definition.
Background to the measure
Options to deal with the withdrawal of the BIRPU 12 definition were consulted upon as part of the Bank Levy Re-scope consultation in 2015. This matter is being legislated separately to the re-scope due to the timescales involved.
Detailed proposal
Operative date
The measure will have effect from 1 October 2016.
Current law
Our current law on HQLA is included in part 8 of schedule 19 to the Finance Act 2011 and within part 4 of the same schedule of the same act for high quality securities.
Proposed revisions
The revisions proposed will amend the existing definition of HQLA to from the old BIPRU definitions to the new CRD IV definitions by amending paragraph 70 of schedule 19 to Finance Act 2011.
The amendment will be made by statutory instrument using the power to make regulations within paragraph 81 of schedule 19 to the Finance Act 2011.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
The Office for Budget Responsibility will include the impact of this measure in its forecast in Autumn 2016.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
The measure is not expected to have a direct or disproportionate impact on any of the protected equality groups.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses. It will only affect banking business with liabilities in excess of £20 billion and amendments to the definitions are expected to have a negligible administrative impact. Banks are expected to incur a negligible one off cost to become familiar with the change in legislation. This measure will have no impact on civil society organisations.
Operational impact (£m) (HM Revenue and Customs or other)
There will be no significant impacts.
Other impacts
Competition assessment: the scope of the bank levy has been specifically designed to ensure a level playing field for all those affected by it in the UK.
Monitoring and evaluation
Receipts from the bank levy are being monitored on an ongoing basis.
Further advice
If you have any questions about this change, please contact Charlotte Hopwood, CTIS on Telephone: 03000 585 950 or email: charlotte.hopwood@hmrc.gsi.gov.uk.
Declaration
The Economic Secretary to the Treasury, Harriet Baldwin MP, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.