The framework for governance and accountability is set by the 1998 Bank of England Act. In some respects the framework was modified by the 2009 Banking Act.
The Court of Directors
The Court of Directors is responsible for managing the affairs of the Bank, other than the formulation of monetary policy. Court's responsibilities under the Bank of England Act 1998 ('the 1998 Act') include determining the Bank's objectives and strategy, and ensuring the effective discharge of the Bank's functions and the most efficient use of its resources. Since the 2009 Banking Act ('the 2009 Act'), the Bank has had a statutory objective to protect and enhance the stability of the financial systems of the United Kingdom' and the Court, consulting HMTreasury and on advice from the FPC (see below), determines the Bank's strategy in relation to that objective.
The members of Court are appointed by the Crown. The nine Directors are all non-executive. One of them is designated by the Chancellor of the Exchequer to chair Court.
The Governors are appointed by the Crown. The Governor for a period of eight years, the Deputy Governors for five years, and the Directors for three years.
Court delegates the day-to-day management of the Bank to the Governor and through him to other members of the executive. But it reserves to itself the right to agree:
- The Bank's strategy and objectives.
- The Bank's expenditure budget.
- Major capital projects.
- The Bank's financial framework.
- The Bank's risk management policies.
- Approval of the accounts and the appointment of auditors.
- The remit for management of the Bank's balance sheet.
- Senior appointments within the Bank.
- Changes in remuneration and pension arrangements.
- The Bank's succession plan.
- The establishment of sub-committees of Court, their terms of reference and membership.
Court keeps its procedures under close review and each year an annual Effectiveness Review is conducted on which a report is made to Court.
Members of Court have been indemnified by the Bank against personal civil liability arising out of the carrying out or purported carrying out of their functions, provided they have acted honestly and in good faith and have not acted recklessly. These indemnities were granted in 2000 and approved by HMTreasury in accordance with the practice of the Government in relation to board members of Non-Departmental Public Bodies.
The Oversight Committee is a statutory sub-committee of Court and has the principal functions of keeping under review the performance of the Bank in relation to its objectives and strategy. The Bank’s objectives for this purpose are the monetary policy objective, the financial stability objective (including the objectives set for the FPC), and any objectives set by Court. The Committee has a similar function in relation to the PRA, delegated by the Court. The Committee monitors the extent to which the objectives set by Court for the Bank’s financial management have been met and (assisted by ARCo) keeps under review the internal financial controls of the Bank to secure the proper conduct of its financial affairs. The Oversight Committee may appoint a person to conduct a performance review (including into policy decisions) and has responsibility for monitoring the Bank’s response to, and implementation of, recommendations. The 1998 Act also confers on the Oversight Committee certain specific review and decision making functions.
Financial Policy Committee
The Financial Policy Committee (FPC) is a statutory sub-committee of Court. It consists of the Governor, the three Deputy Governors, the chief executive of the Financial Conduct Authority, the Executive Director responsible for Financial Stability, and four external members appointed by the Chancellor. The FPC contributes to the achievement by the Bank of its Financial Stability Objective by identifying, monitoring and taking action to reduce risks to the financial system: subject to that, it is required to support the Government’s economic policy, including its objectives for growth and employment. The Committee may give directions to the PRA and the FCA in relation to macroprudential measures prescribed by secondary legislation under the 1998 Act.
The Chair of the FPC is the Governor and the other members are the three Deputy Governors, the Chief Executive of the FCA, the Executive Director of the Bank with responsibility for financial stability, 4 external members nominated by the Chancellor, and a (non-voting) representative of HM Treasury.
Financial System Advisory Committee
Financial System Advisory Committee, which advises on and monitors the performance of the Bank’s financial stability functions which are not within the remit of the FPC. These include Payment System Oversight, the regulation of Central Counterparties and Settlement Systems, and the Bank’s role in relation to the Special Resolution Regime.
Remuneration Committee advises Court on pay and other remuneration of the Bank’s most senior executives; Governors, members of the Executive Team, Advisers to the Governor and external members of the FPC and MPC. It also advises on all matters relating to the remuneration of the non-executive directors of the PRA.
Audit and Risk Committee
The functions of the Audit and Risk Committee are to assist Court in meeting its responsibilities for an effective system of financial reporting, internal control and risk management; and to assist NedCo in discharging its responsibilities under the Bank of England Act 1998 for 'keeping under review the internal financial controls of the Bank with a view to securing the proper conduct of its financial affairs'. The Committee is responsible for providing independent assurance to Court that the Bank's risk and control procedures are adequate. The Committee, which meets regularly, has detailed terms of reference that include: receiving reports from, and reviewing the work of, the internal and external auditors; reviewing the annual financial statements prior to their submission to Court; considering the appropriateness of the accounting policies and procedures adopted; making recommendations on the appointment of the external auditors, their independence and their fees; and reviewing the Bank's risk matrix and specific business controls.
In 2010 a Nominations Committee was formed, inter alia, to make recommendations to Court on the appointment of Executive Directors, the Secretary, and the Internal Auditor of the Bank, appointments to sub-Committees (other than the interim FPC), as to whether likely conflicts of interest are sufficiently severe to prevent a Member of Court continuing to serve as such and to review succession plans with particular regard to those appointments for which Court's approval is required.