The Bank of England’s oversight of the financial market infrastructure (FMI) has been critical during the extreme market volatility experienced this year, Sir Jon Cunliffe deputy governor, financial stability, has said.
In the BoE’s supervision of financial market infrastructures annual report published this month, Cunliffe said: “Market volatility over the past year has demonstrated the importance of the resilience of FMIs for financial stability in the UK and abroad. Over the year, the Bank has continued to deliver robust supervision of FMIs, including through the use of the Bank’s formal powers where issues have warranted such a response.”
Cunliffe said BoE has made targeted enhancements to supervisory frameworks with new requirements on FMI operational resilience and it is consulting on further changes to reflect the increased reliance on outsourcing.
Cunliffe says more stability for FMI will come from the Future Regulatory Framework, as set out in the Financial Services and Markets Bill currently before Parliament, which is “a significant component of HMT’s long-term strategy to create a post-Brexit Financial Regulation Architecture”.
The provisions in the Bill represent what Cunliffe calls “a significant milestone for the Bank’s regulatory regime”, granting rulemaking power in relation to central counterparties and central securities depositories (CSDs).
He added: “As a result, our supervisory approach will evolve to ensure the UK maintains a coherent, agile, and internationally respected approach to financial services regulation that promotes financial stability.
Javier Hernani, head securities services at SIX, welcomes the BoE report: “The BoE’s annual report reinforces the increasing importance of interconnection between FMIs across Europe. What market participants crave is a far greater array of choice when it comes to clearing services. For instance, if an international trading firm is opening a new euro clearing account, they need to have direct access to the domestic CSDs. Providing connectivity like this is paramount to ensuring the financial stability that the BoE has outlined.”
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