Bank of England Levy Framework Document

Introduction

1.1 This Framework Document outlines the Bank’s approach to levying the costs of its policy functions in pursuit of its Financial Stability and Monetary Policy objectives.

1.2 The Bank of England Levy (the Levy) replaced the Cash Ratio Deposit (CRD) scheme on 1 March 2024. In 2021, HMT ran a consultation on how banks and building societies contribute to funding the Bank’s policy and financial stability functions. The consultation proposed the Levy as an alternative funding arrangement to the CRD scheme, to deliver a more stable funding scheme for the Bank’s policy functions. Overall, respondents to the consultation supported the proposal for a new Levy and so, the Financial Services and Markets Act 2023 made amendments to the Bank of England Act 1998, which allow the Bank to charge the Levy to eligible institutions (or Levy payers).

1.3 The Bank will determine the total amount of the Levy to be charged to Levy payers annually, in order to meet the budgeted expenditure on its policy functions.

1.4 The amount of the Levy that Levy payers will be liable to pay will be determined by the Bank in accordance with primary legislation and regulations made by HMT. The Bank will need to ensure that the Levy is operated in line with these regulations and within its operational parameters.

1.5 This Framework Document may be updated or amended from time to time by the Bank, for example to reflect any future changes in law or to the operation of the Levy.

Purpose of the Levy

1.6 The purpose of the Levy is to recover the amounts required by the Bank in connection with the funding of its policy functions. These are the functions exercised by the Bank in pursuit of its Financial Stability and Monetary Policy objectives. Each year, the Bank will determine the policy functions that it will fund, and the total amount of the Levy that the Bank reasonably considers it requires in connection with the funding of those functions. The Bank’s policy costs to be recovered through the Levy will be approved by the Bank’s Court of Directors as part of the annual budget setting process which feeds into the Bank’s Annual Report. The Levy will also be discussed as part of the established arrangements for regular discussions between the Bank and HMT covering the Bank’s financial position.

1.7 The Levy will be applied on a proportional basis, which means that the Bank will allocate the policy costs to be recovered by the Levy in proportion to an eligible institution’s liability base. Eligible liabilities are defined in the Glossary. This will be a continuation of how the CRD scheme operated. The policy rationale for using the eligible liability base is the link between the size of a financial institution’s liabilities and its potential impact on the Bank’s financial stability and monetary policy functions.

Who will pay the Levy?

1.8 Eligible institutions as defined in paragraph 2 of Schedule 2ZA of the Bank of England Act 1998 are required to pay the Levy if they have eligible liabilities greater than £600 million. Such institutions are broadly UK deposit-taking institutions authorised under the Financial Services and Markets Act 2000. The definition of an eligible institution includes banks and building societies.

1.9 HMT has the power to make regulations to amend the definition of an eligible institution in the future.

Costs that the Levy covers

1.10 The Levy covers costs connected to the policy functions exercised by the Bank in pursuit of its Financial Stability and Monetary Policy objectives, which includes anything done in preparation for, to facilitate, or otherwise in connection with the exercise of those functions. The process for determining the costs of the Bank’s annual monetary policy and financial stability operations is part of the Bank’s annual budgeting process, which is subject to National Audit Office value for money considerations and feeds into the Bank’s Annual Report.

1.11 The Bank’s expenditure on its policy functions related to monetary policy and financial stability includes:

• Monetary Analysis and the Monetary Policy Committee (MPC);
• Markets and Banking, Research and Statistics;
• Financial Stability Strategy and Risk;
• Resolution;
• International policy;
• Elements of Financial Market Infrastructure (FMI) which do not relate to Financial Stability supervision and so are not covered by the FMI Levy; and
• Elements of Prudential Regulation Authority (PRA) which do not relate to PRA supervision and so are not covered by PRA Fees.

1.12 These functions may change over time and new activities related to the pursuit of the Bank’s Financial Stability and Monetary Policy objectives may evolve.

1.13 These costs, as well as any other amounts required in connection with the funding of the Bank’s policy functions, will be recovered by the Levy. Such other amounts required in connection with the Bank’s policy functions include, for example, costs that arise as a result of, and to facilitate, the transition from the CRD scheme to the Levy. These costs will include those which arise for the Bank as a result of the conversion of eligible institutions’ unremunerated CRD deposits into remunerated reserves on which interest, at Benchmark Rate, is payable. Such costs will feature as a policy cost for the lifetime of the legacy CRD gilt portfolio, the current purpose of which is to generate income under the CRD scheme. The net interest costs of the transition per year will depend on:

• first, the rate at which the legacy CRD gilts mature or are sold given that the income available from the legacy CRD gilt portfolio will reduce the amount being recouped by the Bank under the Levy; and
• second, the level of interest payable on the remunerated reserves (which will fluctuate with Benchmark Rate).

1.14 In calculating the costs of moving from the CRD scheme to the Levy, the Bank will continue to allocate costs on a basis that is proportional to the size of eligible institutions’ eligible liability base. A breakdown of policy costs will be included in the Bank’s Annual Report. This will also indicate the costs included in the Levy, including those arising as a result of the transition away from the CRD scheme.

1.15 The Levy will also take into account other amounts which are, or are likely to be, available in the Levy Year to fund policy functions, including amounts received in respect of a previous Levy Year and income generated from the legacy CRD gilt portfolio. This is intended to ensure policy costs charged through the Levy are aligned to actual costs incurred by the Bank (further details are available in paragraph 1.18).

Annual notification of the Bank’s Anticipated Levy Requirement

1.16 Around mid-June the Bank will publish an annual notification of its aggregate policy costs for the current year (Anticipated Levy Requirement) in the form of a Statistical Notice on its website which will include the:

• Levy Year in respect of which the Levy is payable;
• total amount of the Levy payable for the Levy Year;
• time by which the Levy must be paid;
• methods by which the Levy must be paid; and
• value of any true up in respect of the previous Levy Year.

1.17 Once the notification document has been published, the Bank will calculate Levy amounts payable by individual Levy payers (as per paragraph 1.36) and prepare invoices to be issued to those Levy payers (as per paragraph 1.21).

True up

1.18 The annual true-up process is the Bank’s methodology for ensuring that policy costs charged through the Levy are aligned to the actual costs incurred by the Bank in the exercise of its policy functions. The true up will be itemised on the invoice that the Bank issues to each Levy payer.

• Policy costs: As the Levy is based on the Bank’s projected policy costs for the Levy Year ahead, it could occur that the Bank’s actual policy costs incurred in that Levy Year are higher or lower than the Bank had projected. If the policy costs are higher or lower than had been projected in a Levy Year, then the Bank will perform a true-up calculation at the end of the relevant Levy Year. This true-up mechanism will allow for the Bank to adjust the total amount of Levy charged for the following Levy Year to reflect any higher or lower policy costs incurred. This means that if the policy costs are higher than the Bank projected, the shortfall would be reflected as an increase in the Levy in the following Levy Year. Conversely, if the policy costs are lower than the Bank projected, then any excess income received in payment of the Levy would be reflected as a reduction in the total amount of the Levy charged for the following Levy Year.
• Excess and shortfall in income from the Levy: There may be other reasons, other than in respect of projected policy costs, why the Bank may incur an income shortfall from the Levy, or receive excess income above the final cost for a Levy Year. For example, an income shortfall could occur due to a lack of payment from a Levy payer, for which the relevant Levy payer would incur a late payment fee (see paragraph 1.44 for further details).
• Any excess income received by the Bank via the Levy will be reduced from the total charge for the next Levy Year, and conversely any shortfall in income will be reflected in the total charge for the next Levy Year.

1.19 The Levy is charged annually for the year ahead, based on the Bank’s projection for its annual policy costs and subject to any adjustments (as per paragraph 1.18). The Levy Year is the 12-month period beginning on 1 March in one calendar year to the last day of February in the following calendar year.

1.20 Table B provides further information for Levy payers on the Bank’s indicative timetable and operational process for a Levy Year including the Annual Notification Document and invoicing.

Levy invoicing

1.21 Levy payers will be informed of the amount of the Levy that they are required to pay through an invoice. An invoice will be issued by the Bank to each Levy payer in or around July each year, which shall include the Levy amount payable by that Levy payer for the Levy Year ahead and, where applicable, reflect any true-up calculation by the Bank for the prior Levy Year.

1.22 The true-up amount will be itemised separately on invoices, enabling Levy payers to identify any adjustments made from the previous Levy Year to the amount of Levy now payable. As a new Levy payer will not have paid the Levy the previous year, it may not be appropriate for their contribution to be affected by costs and payments from previous years. As such:

• institutions who were Levy payers in the previous Levy Year, but who are not required to pay the Levy in the current Levy Year, will be excluded from the true up; and
• new institutions who were not Levy payers in the previous Levy Year will also be excluded from the true up.

1.23 For all other institutions the amount of Levy payable in the current Levy Year will reflect the true up and the proportion that the eligible institution pays will be calculated using the eligible liabilities data from the current Levy Year’s statistical data submission.

1.24 Invoices will be issued to all eligible institutions that are liable to pay the Levy (Levy payer) in respect of the Levy Year. The invoice will include:

• the total amount payable by the Levy payer in respect of the Levy Year;
• where applicable, any true-up calculation resulting from the prior Levy Year;
• the time by which the Levy charge for that Levy payer must be paid; and
• the methods by which the Levy can be paid.

1.25 If there is a problem with a Levy invoice, Levy payers can raise this with the Bank for consideration. The Bank will permit Levy payers to raise an issue with an invoice for a period of one year after the date when the invoice was issued.

1.26 Levy payers should note that:

• Payment of the invoice should be made in pounds sterling by BACS or CHAPS to the Bank account as specified on the invoice.
• Levy payers should notify the Bank in writing if the institution’s contact details for receipt of Levy invoices requires amendment.

Data collection from Levy payers

1.27 The contribution of an eligible institution to the Levy is calculated using eligible liability data for the Reference Period, submitted to the Bank, as per the form Eligible Liabilities Return (Form ELS) which eligible institutions are required to complete by February.

1.28 Each eligible institution’s contribution to the Levy will be proportionate to the size of their eligible liabilities for the Reference Period in their deposit book as submitted in the Form ELS (which can be located on the Bank’s website).

1.29 The eligible liabilities data submission used to determine the total Levy amount for each Levy Year, will be the period from 1 October to 31 December prior to the start of that Levy Year. This is referred to as the ‘Reference Period’.

1.30 Eligible institutions will be informed by the Bank of the deadlines for data submission, including a period where eligible institutions can make revisions, by a Statistical Notice which will be published by the Bank (on the Bank’s website), confirming the period of data to be submitted.

1.31 Where an eligible institution has not provided sufficient data for the Reference Period, but data is available for the previous quarter (or any other appropriate three-month period of data) then the Levy will be calculated using the data applicable for this quarter instead.

1.32 The quarter prior to the Reference Period is July to September, or any other appropriate three-month period.

1.33 The Bank may make amendments to the data, to determine the total eligible liabilities in the Reference Period for a Levy Year, for example in cases of missing data (eg where monthly reporting is not submitted, frequency converted data will be used in the intervening months to show a gradual change) and for changes in organisational structures (mergers, de-mergers etc). Frequency converted data means that the Bank takes the actual data that is submitted by an eligible institution for each quarter and then spreads the difference over the intervening months to show a gradual change over a quarter.

1.34 Where an institution has become an eligible institution during the Reference Period, the Bank may use such other period of no more than three months as the Bank thinks fit.

1.35 First Levy Year only: when calculating the Anticipated Levy Requirement for the first Levy Year, the Bank will use data collected under legislation for the CRD scheme which will be data for the period 1 October 2023 to 31 December 2023. Where an eligible institution under the CRD scheme has not provided sufficient data for this period, then the Levy will be calculated using data submitted for the quarter prior to this, using six-month data, as collected under the CRD scheme. The statistical data submission periods used for the CRD scheme are May to October and November to April.

Calculation of amount of Levy payable by a Levy payer

1.36 The amount of the Levy that a Levy payer is liable to pay in respect of a Levy Year is to be determined by the Bank in accordance with regulations made by HMT.

1.37 The amount of the Levy payable by each Levy payer will be proportionate to the size of the eligible liabilities in their deposit book.

1.38 The Levy amount payable shall also reflect any true-up calculation by the Bank for the prior Levy Year (as outlined in paragraph 1.18).

In respect of each Levy Year

1.39 The Bank will use the following formula to calculate the Levy amount payable by each eligible institution:

AL x EL/TEL

Where:

AL = is the amount of Anticipated Levy Requirement for a Levy Year determined by the Bank in accordance with paragraph 4 of Schedule 2ZA (Bank of England Levy) to the Bank of England Act 1998.

EL = is the amount of the average liability base for the Reference Period in relation to that Levy Year that is over £600 million for that eligible institution.

TEL = is the total sum of the average liability base for the Reference Period in relation to that Levy Year that is over £600 million for all eligible institutions that are liable to pay an amount of the Levy.

1.40 The Bank will use an eligible institution’s statistical reporting data submission to calculate the Levy. Should the structure of that institution change after that date eg due to a merger or de-merger, the update will be reflected in the Anticipated Levy Requirement for the following Levy Year.

1.41 Should an institution become eligible because its eligible liabilities go above £600 million after the eligible liabilities data has been collected for a Levy Year, and the total Levy amount has already been determined, the Levy will be payable by that eligible institution from the following Levy Year. The relevant eligible institution will also be excluded by the Bank from the true-up calculation in the following Levy Year (as outlined in paragraph 1.18).

Obligation to pay the Levy and late payments

1.42 The Levy is to be paid in full by the Levy payer without deduction on or before the due date for payment.

1.43 The Levy is recoverable as a civil debt due to the Bank. The Bank may take all steps and seek all remedies available to a creditor to recover, as a debt due to the Bank, any Levy or other amount, such as late payment charge, which remains unpaid after it falls due.

1.44 A Levy payer who does not pay the full amount of the Levy by the due date for payment will incur a late payment charge on any unpaid part of the Levy, accruing on a daily basis from the due date for payment until payment is made. The late payment charge shall be Benchmark Rate plus 4%.

1.45 HMT has the power to make regulations to amend the amount of the late payment charge on any unpaid amount of the Levy.

Appendix

• Glossary

  Benchmark Rate:

  • the percentage rate announced from time to time by the Monetary Policy Committee of the Bank as the official dealing rate, or
  • where an order under section 19 (Treasury reserve powers) of the Bank of England Act 1998 is in force, any equivalent percentage rate determined by the Treasury under that order.

  Cash Ratio Deposit (CRD) scheme: The Cash Ratio Deposit scheme previously funded the Bank of England’s monetary policy and financial stability functions, until it was replaced with the Bank of England Levy. Under the scheme, banks and building societies with eligible liabilities of more than £600 million were required to place a proportion of their deposit base with the Bank on a non interest bearing basis. The Bank then invested these funds in interest bearing assets (eg gilts) and the income generated from those assets was used to meet the costs of its monetary policy and financial stability functions.

  Eligible institution: an authorised deposit-taker, as defined in paragraph 2 of Schedule 2ZA of the Bank of England Act 1998.

  Eligible liabilities: has the meaning set out in regulation 4 of the Regulations.

  Financial Market Infrastructure (FMI) Fees: fee which funds the Bank of England’s FMI supervisory activity and the policy activity that supports this, as permitted by the Bank’s fee-levying powers. The fee includes the costs of FMI supervision staff together with relevant policy support, specialist resources, corporate services and other costs associated with the work of the FMI Directorate.

  Financial Stability objective: the Bank of England’s financial stability objective is to protect and enhance the stability of the financial system of the United Kingdom.

  First Levy Year: the first 12 months as determined by the Bank.

  Invoice: the means by which eligible institutions will be informed of the amount of the Levy that they are required to pay. An invoice will be issued by the Bank to each eligible institution in or around July each year, which shall include the Levy amount payable by that eligible institution for the Levy Year ahead and reflect, where applicable, any true-up calculation by the Bank for the prior Levy Year.

  Levy payer: an eligible institution that has eligible liabilities greater than £600 million during a Levy Year.

  Levy Year: the 12-month period beginning on 1 March in one calendar year to the last day of February in the following calendar year.

  Liability Base: the liability base of an eligible institution at any time is the aggregate of those sterling and foreign currency liabilities of the institution which are eligible liabilities.

  Monetary Policy objective: the Bank of England’s monetary policy objective is to maintain price stability in the UK. Subject to that, we support the Government’s economic policy, including its objectives on growth and employment.

  Notification Document: around mid-June the Bank will publish on its website an annual notification of its aggregate policy costs (Anticipated Levy Requirement) in the form of a Statistical Notice.

  Prudential Regulation Authority (PRA) Levy: fee to meet the Prudential Regulation Authority’s Annual Funding Requirement (AFR).

  Reference Period: has the meaning set out in regulation (5) (c) of the Regulations and means in relation to a Levy Year:

  • the period beginning with 1 October and ending with 31 December for the year prior to the year in which the Levy Year begins; or
  • where paragraph (6) applies, such other period of no more than three months as the Bank thinks fit.

  Regulations: means the Bank of England Levy (Amount of Levy Payable) Regulations 2024 made by HMT in respect of the Levy.

  Regulatory data return: the data submission to the Bank of England, in accordance with the Eligible Liabilities Return (Form ELS).

  Schedule 2ZA: in addition to section 6A, part of the Bank of England Act 1998, which enables the Bank to impose the Levy on eligible institutions in connection with the pursuit of the Bank’s financial and monetary policy objectives.

  Statistical Notice: Statistical Notices are issued to update the definitions and guidance contained within the Banking Statistics Yellow Folder.

  True up: the Bank’s process for ensuring that policy costs charged through the Levy are aligned to the actual costs incurred by the Bank. Any true up will be itemised on the invoice that the Bank issues to each Levy payer.