June 20, 2019

BoE published the findings of Huw van Steenis’ report on the future of the financial system in the UK, along with the BoE response to the report. BoE had set up the future of finance project to look at how financial services might evolve over the next decade and what this could mean for those who use, provide, or regulate the financial services in UK. The report sets out a number of recommendations for BoE and the wider industry. In response to the recommendations, BoE published a summary of the actions it plans to take in the key areas such as financial resilience and innovation, sustainable finance, and digital regulation, including cyber risks, outsourcing, cloud technology, and artificial intelligence.

BoE had commissioned Huw van Steenis, in May 2018, to lead research on the future of finance and to report the findings and recommendations of the research. The report highlights that finance is likely to undergo intense change over the coming decade and the shift to digitally enabled services and firms is already profound and appears to be accelerating. The shift from banks to market-based finance is likely to grow further. Brexit and other political and policy changes worldwide will also impact the shape of financial services. Regulators and the private sector have to collaborate in new ways as technology breaks down barriers. The report further notes that BoE has taken many important steps in the past few years to adapt its capabilities, policies, and shape markets. At the annual Mansion House speech, Governor Mark Carney, outlined the findings of Huw van Steenis’ report into the future of finance and set out the BoE response this report. He said the new economy that is increasingly being driven by financial technology requires a new finance—one that serves the digital economy and is more efficient, inclusive, sustainable, and resilient.

The BoE response to the report states that BoE will adapt to provide a platform for a resilient, innovative, and competitive financial system. The BoE strategy is to enable innovation and empower competition, while meeting the core objectives of monetary and financial stability. In particular, BoE will:

  • Publish a supervisory statement in 2019, describing the PRA’s modernized policy framework on outsourcing arrangements, including a focus on cloud technology. It will also work with international standard-setting bodies, such as BCBS and IAIS, to develop and adopt international standards. 
  • Establish a public-private working group with the FCA and firms to further the dialog on artificial intelligence innovation and explore whether principles and guidance could support safe adoption of these technologies. It will feed in any findings to the government’s consultation through the Center for Data Ethics and Innovation and accelerate its own work program on artificial intelligence through research and horizon scanning.
  • Champion the LEI as a globally recognized and unique identifier for all businesses in the UK. 
  • Continue to encourage climate-related financial disclosures by UK financial institutions and expects that, by 2022, all listed companies and large asset owners will be disclosing this information. 
  • Conduct a climate stress test for UK financial institutions in 2021, to help mainstream climate risk management across the financial system. To facilitate scenario design, it will publish a discussion paper in the autumn of 2019 and work with industry and other authorities through the Climate Financial Risk Forum and the Network for Greening the Financial System. 
  • Continue to monitor developments in pension legislation and continue to advocate for areas where the European Solvency II Directive framework could be adapted to improve outcomes for policyholders and firms. 
  • Research the potential benefits and implications of Open Banking and respond to the Smart Data Review of government, with recommendations for how data standards and technology can promote an open platform for finance.
  • Consider aligning the frequency of regulator-led, threat-led penetration testing through CBEST to a three-year cycle, including for financial market infrastructure firms, and evaluate the merits of reducing this to two years. It will move to developing and scoping of threat-led penetration tests by certified third parties.
  • Conduct a pilot cyber stress test in 2019, which will explore a hypothetical stress scenario that assumes the systems supporting firms’ payments services are unavailable. BoE will also work with international counterparts and the G7 to explore greater opportunities for joint cyber-simulation exercises, including whether to move to annual rehearsals within the G7.
  • Launch a review in consultation with banks, insurers, and financial market infrastructures to explore a transformation of the hosting and use of regulatory data over the next decade.
  • Complete the process of making the PRA Rulebook machine-readable over the next three to five years, with the aim of simplification and removing redundancies.

 

Related Links

Keywords: Europe, UK, Banking, Fintech, Brexit, Regtech, Cyber Risk, Climate Change Risks, Solvency II, Cloud Computing, Artificial Intelligence, BoE

Related Articles
News

US Agencies Consult on Capital Treatment of Land Development Loans

US Agencies (FDIC, FED, and OCC) issued a proposed rule on the treatment of loans that finance the development of land for purposes of the one- to four-family residential properties exclusion in the definition of high volatility commercial real estate (HVCRE) exposure in the regulatory capital rule.

July 12, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Second Update for July 2019

Under the Single Rulebook question and answer (Q&A) updates for this week, EBA published answers to five questions related to supervisory reporting.

July 12, 2019 WebPage Regulatory News
News

ESMA Updates Manual for European Single Electronic Format in EU

ESMA updated the reporting manual for European Single Electronic Format (ESEF).

July 12, 2019 WebPage Regulatory News
News

FED Updates Supplemental Instructions for Reporting Form FR Y-9C

FED updated the supplemental instructions for FR Y-9C reporting.

July 12, 2019 WebPage Regulatory News
News

EBA Publishes Report on Monitoring Implementation of LCR in EU

EBA published its first report on the monitoring of the implementation of liquidity coverage ratio (LCR) in EU.

July 12, 2019 WebPage Regulatory News
News

EIOPA Consults on Reporting and Disclosures Under Solvency II Review

EIOPA launched a consultation package on supervisory reporting and public disclosure in the context of its work linked with the 2020 Solvency II review.

July 12, 2019 WebPage Regulatory News
News

APRA Applies Additional Capital Requirements to Three Australian Banks

APRA is applying additional capital requirements to three major banks in Australia to reflect higher operational risk identified in their risk governance self-assessments.

July 11, 2019 WebPage Regulatory News
News

IMF Report on 2019 Article IV Consultation on Euro Area Policies

IMF published its staff report in context of the 2019 Article IV consultation on euro area policies with member countries.

July 11, 2019 WebPage Regulatory News
News

FSB to Survey Practices on Cyber Incident Response and Recovery

FSB launched a survey on the industry practices on cyber incident response and recovery.

July 11, 2019 WebPage Regulatory News
News

ECB Appoints New Members of Supervisory Board

The Governing Council of ECB appointed Edouard Fernandez-Bollo, Kerstin af Jochnick, and Elizabeth McCaul as representatives to the Supervisory Board of ECB Banking Supervision, for a five-year non-renewable term.

July 11, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 3441