Introduction
On March 6th, 2024, Gareth Truran, Director of Prudential Policy at the Bank of England, delivered a speech at the TechUK Summit on Operational Resilience for Critical Third Parties. His speech shed light on the proposed UK regime for critical third parties (CTPs) and outlined key features and requirements aimed at further bolstering the resilience of the UK financial sector.
The Imperative for Resilience
Truran underscored the criticality of operational resilience in ensuring the stability and confidence of the UK financial system. With financial firms increasingly relying on third-party service providers, it has become imperative to assess the operational resilience of the sector as a whole. The proposed regime for CTPs is part of a broader strategy to address systemic risks and enhance the sector's resilience to operational disruptions.
Evolution of Regulatory Framework
Truran elucidated the evolution of the regulatory framework, starting from the operational resilience framework finalised in 2021 to the modernisation of policies on outsourcing and third-party risk management. These initiatives aimed to equip financial firms with the tools to identify and mitigate risks associated with third-party dependencies.
Rationale for the CTP Regime
The CTP regime supplements firms' existing obligations and addresses scenarios where individual firms' efforts may fall short in ensuring systemic resilience. Truran highlighted the systemic risks posed by the concentration of critical services in a few third-party providers and emphasised the need for direct regulatory oversight to manage these risks effectively.
Scope and Key Features
Truran outlined the scope of the CTP regime, emphasising the criteria for designating CTPs and the role of regulators in overseeing their resilience.
He highlighted three key features of the regime:
- complementarity with firms' obligations,
- focus on specific services rather than legal entities,
- and collaborative engagement between CTPs, firms, and regulators.
Requirements for CTPs
Truran detailed the proposed requirements for CTPs, including fundamental rules and operational risk and resilience requirements. Incident management emerged as a crucial aspect, with proposed obligations for CTPs to set disruption tolerances, develop incident management playbooks, and engage with sector-wide frameworks for coordinated response.
International Alignment
Recognising the cross-border nature of financial operations, Truran emphasised the importance of international cooperation in addressing CTP-related risks. He outlined strategies for aligning UK regulations with global initiatives and fostering collaboration with overseas counterparts to ensure effective oversight.
Conclusion
Truran reiterated the objective of the proposed CTP regime: to enhance the operational resilience of the UK financial sector. He emphasised the significance of stakeholder engagement in refining the regime and expressed readiness to incorporate feedback to ensure its effectiveness.
As the financial landscape continues to evolve, the proposed regime stands as a cornerstone in safeguarding the sector against operational disruptions and fostering innovation and resilience.
In summary, Truran's speech provided valuable insights into the rationale, scope, and key features of the proposed CTP regime, underscoring its pivotal role in fortifying the operational resilience of the UK financial sector.
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