TheCityUK response to the joint consultation paper from the FCA, the Bank of England and PRA

Operational Resilience: Critical third parties (CTPs) to the finance sector’ from the Financial Conduct Authority (FCA) (CP23/30), the Bank of England (Bank) and Prudential Regulation Authority (PRA) (CP26/23)

We support the proposed approach, which aims to ensure that the regime for CTPs complements and does not duplicate or add to the existing requirements for firms and financial market infrastructures (FMIs). Our key considerations include the need for a proportionate and pragmatic approach, transparency and assurance, and the impact on the UK’s competitiveness and economic growth.

Our key messages include:

  • A proportionate approach is necessary to prevent the burden of compliance from stifling innovation and enable institutions of different sizes and business models to compete fairly.
  • The regulators’ secondary competitiveness and growth objective should be reflected in how CTPs are regulated. Regulators should, where possible, seek alignment with other jurisdictions to establish a single baseline set of operational resilience regulations.
  • An additional Fundamental Rule or extension of Rule 6 is needed, outlining similar requirements for how CTPs should conduct themselves when interacting with their firm and FMI clients.
  • When applying the proposed Fundamental Rules, the regulators should focus on those material services whose interruption or failure could reasonably undermine the stability of, or confidence in, the UK financial system.
  • There needs to be greater clarity on the expectation for CTPs to maintain operational resilience in ‘severe but plausible’ scenarios.
  • CTPs should be required to share both their notifications and full annual self-assessments, rather than just a summary.
  • To avoid creating a ‘two-tiered’ system for CTPs and those which are not designated as critical, the regulators should introduce a mechanism for non-designated third parties to voluntarily meet the minimum resilience standards, such as an option to opt-in to the regulatory regime.

This response should be considered in parallel with our previous paper detailing how regulators and the industry can work together to ensure that the implementation of these regulations not only minimises the impact of disruptions but also promotes innovation and growth.

Continued engagement and collaboration are essential. Given our role across the industry, we are ready to bring together regulators, CTPs and firms/FMIs to share insights and lessons learnt.

To read our full submission, click ‘Read here’.