The Bank of England has launched a consultation on Fundamental Rules for Financial Market Infrastructures and shares its approach to FMI supervision. The Bank aims to introduce a set of Fundamental Rules for UK Financial Market Infrastructures (FMIs), essential to the safe operation of the UK financial system and economy.
It has also released an updated approach document to “set out how it supervises these critical firms.”
The aim of these publications is to increase transparency by setting out the Bank’s expectations of FMIs and how it will “act as FMI supervisor.”
FMIs the Bank supervises are central counterparties (CCPs), central securities depositories (CSDs), recognized payment systems operators (RPSOs) and specified service providers (SSPs).
Both documents highlight the evolution of the Bank’s regulatory as well as supervisory regime across FMI types.
The Fundamental Rules will increase the effectiveness of the Bank’s supervision of these critical parts of the financial system, “supporting UK financial stability and the UK economy more broadly.”
Sarah Breeden, Deputy Governor for Financial Stability, said that the Fundamental Rules are the first “use of the Bank’s new rulemaking powers for CCPs and CSDs.” She added that building on the strong foundations we already have, they’re “using this opportunity to be clear on what we expect from the firms we supervise.”
Breeden also mentioned that together with their updated approach to supervision, it marks the next stage of the Bank “designing a nimble, effective and forward-looking regulatory regime, with more to come in the near future.”
The Bank’s consultation on Fundamental Rules is the first use of the Bank’s new power to make legally binding rules for UK CCPs and CSDs.
They will reportedly apply to Bank-regulated UK payments systems and specified service providers.
The rules seek to clarify the Bank’s desired outcomes across areas such as governance, financial and operational resilience, and “consideration of FMIs’ impacts on the broader financial system.” The rules will also reinforce the Bank’s commitment “to international standards of FMI regulation.”
By setting out the “high-level” outcomes the Bank is seeking, these proposals support the Bank’s new secondary objective to “facilitate innovation in FMI services.”
They have also been subject to a cost benefit analysis “that has been scrutinised by the independent cost benefit analysis panel that provides advice to the Bank and the PRA.”
The supervisory approach document sets out how the Bank will “supervise FMIs.”
This clarity will stripe to enable supervision by ensuring FMIs have a clear understanding of “what the Bank seeks to achieve.”
The supervisory approach will continue to evolve, and the Bank will periodically update its approach “to reflect its priorities and any new developments.”
The Bank’s consultation on Fundamental Rules is “open until 19 February 2025, and the Bank intends to engage with stakeholders during this period to gather a range of views on the proposals.” The Bank will engage with stakeholders in “respect of the supervisory approach document in Q1 2025.”
