Implementing the Bank of England Levy: A Consultation on Draft Regulations

In view of the government’s intent to eliminate the cash ratio deposit (CRD) requirements of institutions (please see the comment box below) and replace them with a levy framework to cover the costs of the Bank of England (BoE) in relation to its monetary policy and financial stability functions, the HM Treasury has now launched a corresponding public consultation. In it, the Treasury seeks input on
– the application of the levy and
– the methodology to determine the amount of the levy to be paid by institutions.
A corresponding draft instrument is enclosed in the consultation. It shall be noted in this context that the BoE has simultaneously launched a consultation on the entire new levy framework which may be found in EventID 23862.
Specifically, in this consultation now, the Treasury seeks feedback on the following:
(1) Application of the levy
The Treasury proposes to apply the new framework to all institutions that are currently subject to the CRD requirements. This includes institutions with an average liability base that is over £600 million for the relevant levy year. The methodology to determine the average liability base is defined in the consultation, but does not vary to the way it is currently determined under the CRD framework.
(2) Calculation methodology
To determine the levies of individual institutions for a given levy year, the Treasury seeks to apply the following formula:
The total funding (levy) needs of the BoE for a given levy year times the average liability base of an institution that is greater than £600 million divided by the average liability base of ALL financial institutions that is greater than £600 million.
In other words, the total funding needs would be split up in accordance with an institution’s liabilities in relation to the total liabilities of all institutions subject to the levy.
For institutions coming into the scope of the new levy requirement within a levy year, the BoE may apply an assessment methodology it deems appropriate to determine corresponding levy rates based on the provisions outlined under the „calculation of the amount of the levy that is payable“ section.
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To conclude, the Treasury notes that – unlike under the CRD framework – the BoE would use data collected over a three-month period to determine the average liability base, instead of the previous six-month collection period.