On 9 October 2019, the Bank of England published the financial policy summary and record (FPSR) of the Financial Policy Committee (FPC) meeting on 2 October 2019.
During the course of the meeting, among other things, the FPC agreed a set of principles that will guide its assessment of how prudential regulation and supervision should adjust to fast-moving developments in payments activities, which are currently a central aspect of innovation in the financial services industry. The principles state that regulation and supervision should:
- reflect the financial stability risk, rather than the legal form, of payments activities. The intention behind this first principle is to ensure that the same level of risk attracts the same level of regulation, given the increasingly diverse nature of companies involved in payments;
- ensure end-to-end operational and financial resilience across payment chains that are critical for the smooth functioning of the economy. This principle is important as payment chains are rapidly changing and becoming more complex; and
- ensure that sufficient information is available to monitor payments activities so that emerging risks to financial stability can be identified and addressed appropriately. Data on some new types of payment activities is currently more limited than for traditional payment systems.
The FPC notes that the introduction of these principles could usefully inform any assessment of existing payments regulation in HM Treasury’s review of the payments landscape to support choice, competition and resilience and ensure that regulation and infrastructure keep pace with innovation.
In relation to the development of Facebook’s cryptocurrency, Libra, the FPC acknowledges that it has the potential to become a systematically important payment system and, therefore, will need to meet the highest standards of resilience and be subject to appropriate supervisory oversight, consistent with the principles. The FPC asserts that the terms of engagement for such innovations must be adopted in advance of any launch and that the UK authorities should use their powers accordingly.