The regulation of FMI - The Bank of England’s priorities for 2025

In a speech given on 10 February 2024, the Bank of England (the “Bank”) outlined its priorities for 2025 in the regulation of Financial Market Infrastructure (“FMI”).

The speech comes at a time when the Bank is considering its approach in the light of a number of recent regulatory changes, including: (i) the granting to the Bank of a wide-ranging rule-making power in relation to CCPs and CSDs; and (ii) the introduction in August 2023 of the Bank’s new secondary “competitiveness and growth objective”.  The speech also follows on the heels of a recent Bank of England Approach Document which it describes as “refreshing” its approach to the supervision of FMIs, and a consultation on extending the application of the Fundamental Rules to FMIs.

The Bank stated that its priorities for the year ahead are:

• Ensuring FMI services are operationally resilient.
• Safe and sustainable innovation.
• Financial resilience.

These priorities are consistent with recent Bank initiatives, such as the Critical Third Parties regime and the stress testing of the financial resilience of CCPs.   It also aligns with broader initiatives to support innovation, such as the Digital Securities Sandbox and the digital gilt (or DIGIT).

The following additional points of interest emerged from the speech:

• Consistent with the Bank’s ongoing focus on ensuring FMI services are operationally resilient, the Bank plans to develop more detailed guidance to formalise its expectations on cyber resilience, in particular, in line with increased sophistication and risk of cyber events.  
• The Bank said that, as part of its work with HM Treasury to repeal the UK European Market Infrastructure Regulation (EMIR) for CCPs and replace it with Bank rules and relevant statutory provisions, the Bank and HMT are considering how to:
  • simplify certain processes, such as for approving CCP margin models and authorising new products; and 
  • introduce an adaptable and dynamic rulebook that aligns with evolving international standards, particularly on margin transparency.
• More generally, the Bank highlighted its continued focus on facilitating “safe and sustainable” innovation, in line with its secondary objective.  In this context, the Bank will focus on ensuring that the regulatory and supervisory frameworks that FMIs operate within facilitate innovation while maintaining financial stability, enabling it to encourage innovation across the FMI sector.

Throughout the speech there is a strong emphasis on the Bank engaging with FMIs and working them in order for the Bank to achieve its objectives.  This includes in relation to how the Bank can help support innovation and enhancements within existing FMI services, but is not limited to that.  It appears that the Bank wishes to foster a closer working relationship with the FMIs that it supervises.

Authored by Keti Tano and Dominic Hill.