14 February 2019

The Bank of England's supervision of financial market infrastructures - Annual Report 2019

The FMI Annual Report sets out how the Bank has exercised its responsibilities in respect of supervising financial market infrastructure over the past year. It also outlines the Bank’s domestic and international policy work to strengthen the regulatory and supervisory frameworks for FMIs, and sets out the Bank’s priorities for its FMI work in 2019.

The financial market infrastructure firms (FMIs) supervised by the Bank of England (the Bank) perform a vital economic function. They enable payments for goods and services, record ownership of bonds and shares, and help financial market participants — in the United Kingdom and abroad — to manage risk. They also support the smooth operation of the wholesale money markets that are used by the Bank to implement monetary policy. The safe and reliable operation of supervised FMIs is central to the Bank’s overarching mission to maintain monetary and financial stability in the UK.

Mr Cunliffe says:

“Over the past year the Bank’s supervision of FMIs has, as in previous years, provided the foundation to our confidence in financial stability. Alongside this essential work, in 2018, we have worked to ensure that the FMIs and the Bank as their supervisor are suitably prepared for the UK’s withdrawal from the EU, including in the event that the UK leaves the EU without a deal on 29 March. We have taken the necessary steps to avoid interruption to the vital services that the FMIs provide.

“As part of this work, we have closely monitored UK FMIs’ EU withdrawal contingency plans and where appropriate worked with the relevant domestic and EU authorities to reduce the risk of disruption. Steps taken by the European Commission in December 2018 in respect of UK central counterparties (CCPs) and central securities depositories (CSDs) were particularly important in addressing potential risks to financial stability which had been flagged by the Financial Policy Committee (FPC).”

In addition to contingency planning, the Bank has provided advice to the UK Government on its work nationalising EU law to enable FMIs to continue to operate within a legal framework that is based on the EU framework in place today. As part of this, Bank of England has made preparations to assume responsibility for recognising overseas FMIs that wish to offer services in the UK after EU withdrawal. This includes ensuring that these FMIs are suitably informed about the steps they need to take to enter the transitional arrangements applicable to them in a no-deal scenario.

Preparing for EU withdrawal has been a significant undertaking but Bank of England has also made progress on a number of other important areas. A particularly important step to enhance its supervisory framework has been to develop a fuller articulation of the objectives of FMI supervision. The revised objectives provide a transparent anchor for supervisory decision-making and emphasise that the Bank is committed to taking an international as well as domestic perspective to FMI supervision. This includes working closely with other regulators globally to ensure that UK FMIs operate in a manner that supports monetary and financial stability in other countries as well as the UK.

This Report also highlights other important developments including the expansion of the Bank’s supervisory remit to include specified service providers to payment systems recognised as systemically important by HM Treasury (HMT). It also outlines important work on the operational resilience of FMIs, including cross-authority policy work being run in co-operation with the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).

Full publication

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