On 13 December 2024, the Bank of England (BoE) issued a consultation paper setting out proposals for a set of requirements in rules and a code of practice and expectations for UK financial market infrastructures (FMIs) to report operational incidents and their material third-party arrangements.

Rationale

The proposals in the consultation paper would allow the BoE to collect data which would be used to monitor and manage potential risks arising from operational incidents and FMIs’ increasing reliance on third parties in an effective but proportionate manner and advance the BoE’s objective of protecting and enhancing UK financial stability.

Scope

The proposed rules will apply to recognised UK central counterparties (CCPs), recognised UK central securities depositories (CSDs), UK recognised payments system operators (RPSOs) and UK specified service providers (SSPs).

The BoE states that third-country CSDs and ‘systemic third-country CCPs’ are not in scope but should HM Treasury make regulations in future that allow for the application of these rules to third-country CSDs, or set criteria of general application in respect of the definition of a ‘systemic third-country CCP’, the BoE may look to expand the rules to these entities.

Whilst non-UK RPSOs and SSPs fall outside of the scope of the proposals, the BoE may look to extend the rules to these entities in the future. In such circumstances the BoE may decide to place reliance on a home regulator where the FMI’s home jurisdiction’s regulatory and supervisory framework deliver broadly similar outcomes to those of the UK, and where the BoE is satisfied that there are sufficient co-operation arrangements in place and engagement to rely on the home authority.

Consultation

Section 2 of the consultation paper sets out proposals relating to operational incident reporting whereas sections 3 and 4 cover proposals relating to outsourcing and third-party reporting and ‘Have Regards’ analysis for certain policy considerations.

The proposals in the consultation paper would result in:

  • New rules for CCPs (Notifications and Regulatory Reporting) and CSDs (Notifications and Regulatory Reporting) and a new Part 4 (Notifications and Regulatory Reporting) of the Code of Practice for RPSOs and SSPs.
  • A new BoE supervisory statement setting out the BoE’s expectations of how FMIs should comply with and interpret the proposed new operational incident reporting requirements in the rules and code of practice.
  • Amendments to the BoE’s supervisory statements on outsourcing and third-party risk management for FMIs setting out the BoE’s expectations of how FMIs should comply with and interpret the proposed new material third-party arrangements requirements in the new Part 4 of the Code of Practice for RPSOs and SSPs and new rules for CCPs and CSDs.

Next steps

The deadline for comments on the consultation paper is 13 March 2024.

The proposed implementation date for the proposals in the consultation paper is no earlier than the second half of 2026.