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    BoE and HMT Consult on Digital Pound, Issue Other Regulatory Updates

    February 07, 2023

    The HM Treasury (HMT) and the Bank of England (BoE) are seeking comments, until June 07, 2023, on the proposal for a retail central bank digital currency (CBDC) or a digital pound. Alongside the consultation, BoE published a technology working paper outlining the emerging thinking on CBDC technology. The Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA), and the BoE also published a letter that highlights the 2022 thematic findings from the latest cycle of CBEST assessments. In addition, PRA is seeking comments, until February 28, 2023, on proposals to remove certain Senior Managers and Certification Regime (SM&CR) forms from the PRA Rulebook and to extend the length of employment history required in the long form A.

    The consultation on digital pound aims to assess the case for a retail central bank digital currency (CBDC), or a digital pound, designed for everyday payments by households and businesses. The consultation seeks feedback on the policy and technical work undertaken so far to inform the decision on whether or not to progress in building and launching a digital pound and on the current proposal for its form and functions, which will be taken forward in the next stage. Through this consultation, BoE and HMT seek views on proposed model for the digital pound, data protection and privacy controls, user experience, and holding limits for the digital pound. The digital pound would be a new form of sterling, similar to a digital banknote, issued by BoE and would be used in-store, online, and to make payments to family and friends. If introduced, the digital pound would exist alongside, and be easily exchangeable with, cash and bank deposits. Going forward, BoE and HMT plan to move to the design phase, which will involve the development of a comprehensive architecture for the digital pound and the associated experimentation and proofs-of-concept in partnership with the private sector. The legal basis for the digital pound will be determined alongside consideration of its design. BoE and HMT expect that the decision on whether to proceed to build the digital pound will be made, at the end of the design phase. The earliest stage at which the digital pound could be launched would be the second half of the decade.

    The 2022 CBEST assessment aimed to test the defenses as well as assess the threat intelligence capability and the ability of a firm to detect and respond to a range of external attackers, including people on the inside. The BoE letter is focused on the results of this assessment, wherein the supervisory teams analyzed the outcomes of CBEST assessments and identified trends and findings descriptive of the current cyber-posture of the sector. These themes are based on over 350 findings from the intelligence-led penetration tests conducted on 14 firms during this cycle of testing and outline examples of the most common control weaknesses in those areas. For firms that have participated in the latest CBEST cycle, the remediation plans that have been agreed with supervisors will remain the primary focus for addressing their cyber resilience issues. The purpose of making these results available to the senior management function with the responsibility for cyber risk is to ensure that a firm is able to benefit from the identification of potential weaknesses, raise awareness in the senior executive team, and inform the work of the risk and internal audit functions. The regulators may use these findings to structure future supervisory interaction and understand the level of engagement firms have achieved with the senior executive team, risk, and audit functions on the issues identified as in need of remediation. 

    As part of the consultation on SM&CR Forms, PRA is proposing to remove certain SM&CR forms from the PRA Rulebook. The proposed changes would reduce administrative costs for both PRA and the regulated firms as well as reduce the time required to make non-material changes; this will allow PRA to improve the forms and provide clarifying materials promptly. As a result of this proposed change, when PRA would need to make administrative or other non-material changes to its forms, it would be clear that it would not be required to follow the statutory consultation process for rule changes. PRA is further proposing to increase the length of employment history required in long form A from 5 years to 10 years. By increasing the requested length of employment history to 10 years, Form A (long form) would be consistent with the length of employment history required by MiFID-related forms. This would ensure a consistent user experience with all Senior Managers Function (SMF) applicants providing the same minimum length of employment history. The consultation applies to all PRA-authorized firms, including credit unions. PRA expects that the implementation date for the changes resulting from this consultation would be May 2023.


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    Keywords: Europe, UK, Banking, Regtech, CBDC, Digital Pound, SM&CR, Basel, CBEST, Cyber Risk, PRA Rulebook, Central Bank Digital Currency, BoE, PRA, HM Treasury, FCA

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