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.
- Notification on Future of Finance Report
- Future of Finance Report (PDF)
- BoE Response
- Speech by Mark Carney
Keywords: Europe, UK, Banking, Fintech, Brexit, Regtech, Cyber Risk, Climate Change Risks, Solvency II, Cloud Computing, Artificial Intelligence, BoE
The Hong Kong Monetary Authority (HKMA) revised the Supervisory Policy Manual module CG-5 that sets out guidelines on a sound remuneration system for authorized institutions.
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
The European Central Bank (ECB) published a paper as well as an article in the July Macroprudential Bulletin, both of which offer insights on the assessment of the impact of Basel III finalization package on the euro area.
The International Swaps and Derivatives Association (ISDA) published a paper that explores the impact of the Fundamental Review of the Trading Book (FRTB) on the trading of carbon certificates.
The Prudential Regulation Authority (PRA) published the remuneration policy self-assessment templates and tables on strengthening accountability.