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:

  • the implementation of the European Market Infrastructure Regulation which has catalysed significant improvements in UK CCPs’ risk management over the past year;
  • all UK FMIs supervised by the BoE now have in place recovery plans designed to ensure the ongoing provision of critical services should they, or their operating companies, suffer financial distress;
  • UK CCPs have introduced rules to allocate losses from their investment of participants’ cash collateral. These rules, introduced to comply with new UK legal requirements which came into force during 2014, enable these highly unlikely and potentially catastrophic losses to be allocated in a way which allows a CCP to continue to provide its critical services, rather than leading to the CCP’s insolvency (in which case the losses would ultimately be borne by the CCPs’ participants); and
  • UK securities markets moved to a T+2 settlement cycle on 6 October 2014 in line with requirements in the EU Central Securities Depositories Regulation. This has reduced counterparty credit risk in these markets by moving trades to settlement after two rather than three days.

Chapter 1 of the annual report outlines the BoE’s role in the supervision of FMIs. Chapter 2 sets out how the BoE has worked to meet its financial stability objective, through FMI supervision, over the past year and reviews progress against the priorities discussed in the previous annual report. Chapter 3 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.

View The Bank of England’s supervision of financial market infrastructures – Annual Report, 11 March 2015