The Bank of England (BoE) has responsibility for supervising financial market infrastructures (FMIs) as part of its mission to promote the good of the people of the UK by maintaining monetary and financial stability. These FMIs are recognised payment systems, central counterparties (CCPs) and securities settlement systems. The BoE has now published an annual report which sets out how it has exercised its responsibilities over the past year.
The annual report includes a foreword from the BoE’s Deputy Governor for Financial Stability, Sir John Cunliffe. It also highlights a number of significant developments with respect to FMIs including:
- enhancing cyber resilience, working with FMIs at the core of the UK financial system to ensure that they complete CBEST tests and adopt individual cyber resilience action plans (CBEST is a framework that the UK regulatory authorities have developed to deliver controlled, bespoke, intelligence led cyber security tests);
- increasing the robustness of a range of financial risk mitigants across FMIs. Prefunding was introduced for two UK ‘deferred net settlement’ payment systems’ – Bankers’ Automated Clearing Services and Full Payment Submission. This represented the completion of a long-term project which will bring material benefits for UK financial stability; and
- improving thegovernance of FMIs, in particular the effectiveness of FMI boards, and of CCP board risk committees. CCP board risk committees are composed of independent members, clearing members and clients, whose role is to advise the CCP board in its decision-making regarding key areas of risk for the CCP.
Chapter 1 of the annual report outlines the FMIs in context. Chapter 2 sets out the BoE’s role in the supervision of the FMIs. Chapter 3 concludes the report on the BoE’s supervision of FMIs over the past year. Chapter 4 summarises the forward-looking priorities that the BoE intends to focus on in the coming year and describes some of the developments expected to impact FMIs and the BoE’s supervision of them in the near future. Such developments include central counterparty (CCP) recovery. The BoE notes that greater use of central clearing has increased the systemic importance of CCPs and that international policy work is underway to review and strengthen recovery and resolution arrangements of CCPs. The BoE notes that it will continue to assess the adequacy of recovery plans, in light of existing requirements and guidance, including UK statutory provisions regarding loss allocation rules.
View The Bank of England’s supervision of financial market infrastructure – Annual Report, 4 March 2016