PS6/21 | CP29/19 | DP1/18 Operational Resilience - Bank of ...

Operational resilience: Impact tolerances for important business services – PS 6/21. Overview. This Prudential Regulation Authority (PRA) Policy Statement (PS) ... Ouruseofcookies Weusenecessarycookiestomakeoursitework(forexample,tomanageyoursession).We’dalsoliketousesomenon-essentialcookies(includingthird-partycookies)tohelpusimprovethesite.Byclicking‘Acceptrecommendedsettings’onthisbanner,youacceptouruseofoptionalcookies. Necessarycookies Analyticscookies   Yes Yes Acceptrecommendedcookies Yes No Proceedwithnecessarycookiesonly Necessarycookies Necessarycookiesenablecorefunctionalityonourwebsitesuchassecurity,networkmanagement,andaccessibility.Youmaydisablethesebychangingyourbrowsersettings,butthismayaffecthowthewebsitefunctions. Analyticscookies Weuseanalyticscookiessowecankeeptrackofthenumberofvisitorstovariouspartsofthesiteandunderstandhowourwebsiteisused.FormoreinformationonhowthesecookiesworkpleaseseeourCookiepolicy. Skiptomaincontent Home Prudentialregulation PS6/21|CP29/19|DP1/18OperationalResilience:Impacttolerancesforimportantbusinessservices PS6/21|CP29/19|DP1/18OperationalResilience:Impacttolerancesforimportantbusinessservices PolicyStatement6/21|ConsultationPaper29/19|DiscussionPaper1/18 Relatedlinks Relatedlinks Pressrelease-Buildingoperationalresilience:impacttolerancesforimportantbusinessservicesDecember2019 FCACP19/32 Outsourcingandthirdpartyriskmanagement-CP30/19 FCAPS PS7/21‘Outsourcingandthirdpartyriskmanagement’ Update3June2021:Thisupdateisrelevantonlytofirmswithannualgrosswrittenpremiumsinexcessof£10billiondeterminedonthebasisoftheaverageannualamountassessedacrossarollingperiodofthreeyears,calculatedbyreferencetothefirm’saccountingreferencedate.IthascometothePRA’sattentionthattherewasatypographicalerrorinparagraph3.15ofPolicyStatement(PS)6/21‘Operationalresilience:Impacttolerancesforimportantbusinessservices’.ThishasresultedinPS6/21notreflectingaccuratelythewordingoftheOperationalResilience–SolvencyIIPartofthePRARulebook,effectivefromWednesday31March2022.Thefigureof£10billionreferredtoinparagraph3.15shouldread£15billion.Thishasnowbeencorrected.  Publishedon29March2021 Operationalresilience:Impacttolerancesforimportantbusinessservices ThispaperisissuedjointlybythePrudentialRegulationAuthority(PRA),theFinancialConductAuthority(FCA),andtheBankofEngland(‘theBank’)initscapacityofsupervisingfinancialmarketinfrastructures(FMIs),collectively‘thesupervisoryauthorities’. AkeypriorityforthesupervisoryauthoritiesistoputinplaceastrongerregulatoryframeworktopromotetheoperationalresilienceoffirmsandFMIs.Tothisend,thesupervisoryauthoritiespublishedajointDiscussionPaperonOperationalResiliencein2018settingoutanapproachtooperationalresilience(page3of3).Followingthis,thesupervisoryauthoritiespublishedasuiteofconsultationdocuments(‘theconsultations’)inDecember2019toembedthisapproachintopolicy(page2of3). TheproposalsweredesignedtoimprovetheoperationalresilienceoffirmsandFMIsandprotectthewiderfinancialsectorandUKeconomyfromtheimpactofoperationaldisruptions.TheconsultationsproposedrequirementsandexpectationsforfirmsandFMIsto:  identifytheirimportantbusinessservicesbyconsideringhowdisruptiontothebusinessservicestheyprovidecanhaveimpactsbeyondtheirowncommercialinterests; setatolerancefordisruptionforeachimportantbusinessservice;and ensuretheycancontinuetodelivertheirimportantbusinessservicesandareabletoremainwithintheirimpacttolerancesduringsevere(orinthecaseofFMIs,extreme)butplausiblescenarios. Operationalresilience:Impacttolerancesforimportantbusinessservices(jointcoveringdocument) Operationalresilience:Impacttolerancesforimportantbusinessservices–PS6/21 Overview ThisPrudentialRegulationAuthority(PRA)PolicyStatement(PS)providesfeedbacktoresponsestoConsultationPaper(CP)29/19Operationalresilience:Impacttolerancesforimportantbusinessservices(page2of3).ItalsocontainsthePRA’sfinalpolicy,asfollows: anewOperationalResiliencePartsofthePRARulebook(Appendix1); amendmentstotheGroupSupervisionPartofthePRARulebook(Appendix1); anewSupervisoryStatement(SS)1/21‘Operationalresilience:Impacttolerancesforimportantbusinessservices’(Appendix2);and anewStatementofPolicy(SoP)‘Operationalresilience’(Appendix3). ThisPSisrelevantto: UKbanks,buildingsocieties,andPRA-designatedinvestmentfirms(banks);and UKSolvencyIIfirms,theSocietyofLloyd’sanditsmanagingagents(insurers). Summaryofresponses ThePRAreceived48responsestotheCP.Therewasgeneralsupportforthemaincomponentsofthepolicy,consistentwithfeedbacktothe2018DiscussionPaper(page3of3).Broadly,thecommentsfocusedonimplementation,proportionality,alignmentwiththeFinancialConductAuthority,alignmentwithinternationalprinciplesandrequestsforfurtherdetailonPRAexpectations.MoredetailcoveringallCPresponsesissetoutundertherelevantpolicysectionsinChapter2ofthePS. Implementation TheOperationalResiliencePartswillbeeffectivefromThursday31March2022.Tocomplywiththerules,firmsshouldcontacttheirsupervisorstoagreetheirplansformeetingpolicyrequirements. SS1/21willbeeffectivefromThursday31March2022. TheproposalssetoutinthisPShavebeendesignedinthecontextoftheUKhavinglefttheEuropeanUnionandthetransitionperiodhavingcometoanend.Unlessotherwisestated,anyreferencestoEUorEUderivedlegislationrefertotheversionofthatlegislationwhichformspartofretainedEUlaw.ThePRAwillkeepthepolicyunderreviewtoassesswhetheranychangeswouldberequiredduetochangesintheUKregulatoryframework. PolicyStatement6/21 Appendix Appendix1:PRARULEBOOK:CRRFIRMS,SOLVENCYIIFIRMS:OPERATIONALRESILIENCEINSTRUMENT2021(pdf) Appendix2:SS1/21‘Operationalresilience:Impacttolerancesforimportantbusinessservices’ Appendix3:StatementofPolicy‘Operationalresilience’ Update7May2020:On20March,weannouncedanextensiontotheBankandPRAconsultationsonOperationalResilienceuntil1October2020.ItisplannedthatfirmsandFMIswillnotneedtomeetrequirementsresultingfromtheconsultationsbeforetheendof2021.WhileoperationalresilienceremainsatoppriorityfortheBank,PRAandFCA,thedelaysareintendedtoalleviateburdenonfirmsandFMIsinthewakeoftheCovid-19outbreak. Update20March2020:Thedeadlineforresponseswill,inlinewiththeFCA,beextendedto1October2020.Formoreinformationonthispleaseseeourstatement‘BankofEnglandannouncessupervisoryandprudentialpolicymeasurestoaddressthechallengesofCovid-19’. Publishedon05December2019 Buildingoperationalresilience:Impacttolerancesforimportantbusinessservices AkeypriorityfortheBankofEngland,PrudentialRegulationAuthority(PRA)andFinancialConductAuthority(FCA)istoputinplaceastrongerregulatoryframeworktopromoteoperationalresilienceoffirmsandfinancialmarketinfrastructures(FMIs).Tothisend,wepublishedourjointDiscussionPaperonOperationalResiliencelastyear(seepage2of2)tostartadialoguewiththefinancialservicesindustry.Wereceivedanimpressivelevelofengagementfromindustryandtwokeyconclusionshaveemerged:(1)thereisstrongsupportforourproposedapproachbutrespondentsaskedforafullerexplanation;and(2)manystakeholdersseeastrongalignmentbetweenthegoalsoffirmsorFMIsandtheauthoritiesinthisarea. ThispaperisissuedjointlybythePrudentialRegulationAuthority(PRA),theFinancialConductAuthority(FCA)andtheBankofEngland(‘theBank’)initscapacityofsupervisingfinancialmarketinfrastructures(FMIs),collectively‘thesupervisoryauthorities’. TheDiscussionPaper‘BuildingtheUKFinancialSector’sOperationalResilience’(theDP),publishedinJuly2018,setoutanapproachtooperationalresilience. OnThursday5December2019,thesupervisoryauthoritiespublishedasuiteofdocuments(‘theproposals’),whichwouldembedthatapproachintopolicy.ThispaperprovidesasummaryoftheoverallapproachanddevelopmentsincetheDP. Detailedproposalsfromeachsupervisoryauthorityaresetoutinthepackageofpublications: aPRAConsultationPaper(CP),whichincludesdraftrules,adraftStatementofPolicy(SoP),andadraftSupervisoryStatement(SS).OnThursday5December2019thePRAalsopublishedaCPwhichincludesadraftSSonoutsourcingandthirdpartyriskmanagement whichisakeypartofoperationalresilience,andfirmsareencouragedtoreadthisalongsidethePRA’soperationalresilienceCP; aCPissuedbytheFCA,whichincludesdraftrulesanddraftguidance.TheFCACPalsocontainsachapteronoutsourcing;and  individualCPsanddraftSSsissuedbytheBankforcentralcounterparties,andcentralsecuritiesdepositories.TheBankisalsopublishingaCP,draftSSanddraftoperationalresiliencechapteroftheCodeofPracticeforrecognisedpaymentsystemoperatorsandspecifiedserviceproviders. Buildingoperationalresilience:Impacttolerancesforimportantbusinessservices PRAConsultationPaper29/19‘Operationalresilience:Impacttolerancesforimportantbusinessservices’ Overview Inthisconsultationpaper(CP),thePrudentialRegulationAuthority(PRA)setsoutitsproposalsforPRArules(Appendix1and2),asupervisorystatement(SS)(Appendix3)andastatementofpolicy(SoP)(Appendix4)designedtoimprovetheoperationalresilienceoffirmsandprotectthewiderfinancialsectorandUKeconomyfromtheimpactofoperationaldisruptions.ThedraftrulesandexpectationsseektoembedtheconceptsoftheJuly2018DiscussionPaper(DP)1/18‘BuildingtheUKfinancialsector’soperationalresilience’(theDP)intothePRA’sprudentialframework(page2of2).TheaccompanyingjointBankofEngland(Bank),FinancialConductAuthority(FCA)andPRAcoveringpaper,‘Buildingoperationalresilience:Impacttolerancesforimportantbusinessservices’setsouthowtheconceptsintheDPhavebeenupdatedintheproposedpolicy.ThedraftSoPsetsouthowthePRAproposestosuperviseexistingpoliciesinthelightoftheproposednewoperationalresiliencerulesandexpectations. ThisCPisrelevanttoall: UKbanks,buildingsocietiesandPRA-designatedinvestmentfirms(banks);and UKSolvencyIIfirms,theSocietyofLloyd’sanditsmanagingagents(insurers). Theproposalsaimtoaddressriskstooperationalresilienceincludingthosearisingfromtheinterconnectednessofthefinancialsystem,andthecomplexanddynamicenvironmentinwhichfirmsoperate.ThePRAconsidersthatthereisaneedforaproportionateminimumstandardofoperationalresiliencethatincentivisesfirmstopreparefordisruptionsandtoinvestwhereitisneeded. Responsesandnextsteps ThisconsultationclosesonFriday3April2020.ThePRAinvitesfeedbackontheproposalssetoutinthisconsultation.PleaseaddressanycommentsorenquiriestoCP29_19@bankofengland.co.uk.  Subjecttothefeedbackreceived,thePRAwillworktodevelopfinalOperationalResiliencePartsforpublicationinthesecondhalfof2020.ThePRAwillcontinuetocollaboratewiththeFCAandtheBanktodevelopanapproachforregulatedfirmsandFinancialMarketInfrastructures(FMIs)thatisalignedasfaraspracticable. TheproposalssetoutinthisCPhavebeendesignedinthecontextofthecurrentUKandEUregulatoryframework.ThePRAwillkeepthepolicyunderreviewtoassesswhetheranychangeswouldberequiredduetochangesintheUKregulatoryframework,includingthosearisingonceanynewarrangementswiththeEuropeanUniontakeeffect. IntheeventthattheUKleavestheEUwithnoimplementationperiodinplace,thePRAhasassessedthattheproposalswouldneedtobeamended. AsecondversionoftheproposedruleswhichincludestherelevantamendmentsisattachedtothisCP. DependingonthetimingoftheUK’swithdrawalfromtheEU,theamendmentsmaybemadeundertheEU(Withdrawal)Act2018(EUWA).PleaseseePS5/19‘TheBankofEngland’samendmentstofinancialserviceslegislationundertheEuropeanUnion(Withdrawal)Act2018’forfurtherdetails.ChangesunderEUWAshouldbereadinconjunctionwiththedraftPRAtransitionaldirectionpublishedinCP18/19‘UKwithdrawalfromtheEU:ChangesfollowingextensionofArticle50’ . ThedraftSSanddraftSoPattachedtothisCPshouldbereadinconjunctionwithSS1/19‘Non-bindingPRAmaterials:ThePRA’sapproachaftertheUK’swithdrawalfromtheEU’. Implementation TheproposedimplementationdatefortheproposalsintheCPisthesecondhalfof2021.  ConsultationPaper29/19 Pressrelease BankofEnglandDiscussionPaper1/18|PRADiscussionPaper1/18|FinancialConductAuthorityDiscussionPaper18/04 Introduction Thisdiscussionpaper(DP)isissuedjointlybythePrudentialRegulationAuthority(PRA),theFinancialConductAuthority(FCA),andtheBankofEngland(theBank)initscapacityofsupervisingfinancialmarketinfrastructures(FMIs),(collectively'thesupervisoryauthorities').ThepurposeofthisDPistosharethesupervisoryauthorities’thinkingregardingoperationalresilienceandobtainfeedback.  WewelcomeresponsestothequestionsaskedthroughouttheDP(listedinChapter8).Feedbackiswelcomedfromallpartsofthefinancialsector,aswellasfromconsumers,marketparticipantsandotherstakeholders,includingotherregulatoryorganisations. Theimportanceofoperationalresilience OperationaldisruptionstotheproductsandservicesthatfirmsandFMIsprovidehavethepotentialtocauseharmtoconsumersandmarketparticipants,threatentheviabilityoffirmsandFMIs,andcauseinstabilityinthefinancialsystem.ThisDPfocusesonhowtheprovisionoftheseproductsandservicescanbemaintained.Operationalresiliencereferstotheabilityoffirms,FMIsandthesectorasawholetoprevent,respondto,recoverandlearnfromoperationaldisruptions. Discussionpaperstructure Chapter2explainswhythesupervisoryauthoritiesconsiderthatmanagingoperationalresilienceismosteffectivelyaddressedbyfocusingonbusinessservices,ratherthanonsystemsandprocesses.  Chapter3explainsthatfinancialstabilityrestsontheoperationalresilienceofindividualfirms,FMIsandthesystemasawhole. Chapter4suggeststhattheboardsandseniormanagementoffirmsandFMIswouldsettheirowntolerancesforoperationaldisruption,ontheassumptionthatthatsomeorallsupportingsystemsandprocesseswillfail. Chapter5expandstheideathatfirmsandFMIswoulddevelopimpacttolerancesforimportantbusinessservices. Chapter6explainshowsupervisorscouldgainassurancethatfirmsandFMIsensurethecontinuityoftheirmostimportantbusinessservices,andthatboardsandseniormanagementaresufficientlyengaged. Chapter7summarisessomeofthekeyconceptssetoutintheDP. Chapter8isacompletelistofthequestionsintheDP. Responsesandnextsteps ThesupervisoryauthoritieswelcomefeedbackonthisDP,includinganyspecificsuggestions,issues,orpotentialalternatives. Thesupervisoryauthoritieswillworktogethertoreflectonthefeedbackasthey:developpotentialproposalsforconsultation;developtheirrespectivesupervisoryapproaches;andworkwiththeFPCasitdevelopsitsownimpacttolerances.ThesupervisoryauthoritieswillalsobedrawingtogetherexistingpolicymaterialrelatedtooperationalresilienceinordertosupportfirmsandFMIstobuildtheirresilience. PleasesendanyresponsestoDP1_18@bankofengland.co.ukbyFriday5October2018. 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