On 21 July 2022 the Bank of England (BOE), Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) published a joint Discussion Paper P3/22 on the supervision of critical third parties (CTPs) to the UK financial services industry.
The financial regulator and other bodies recognise that CTPs provide multiple benefits to financial services firms but there is a risk they could also cause financial instability or consumer harm if their services fail or are disrupted. The Discussion Paper therefore sets out how the supervisory authorities plan to improve the resilience of services offered by CTPs .
The main focus areas outlined in the discussion paper include:
A framework for identifying potential CTPs, which would inform the supervisory authorities’ recommendations for formal designation by HM Treasury.
Minimum resilience standards for CTPs, which would apply to the services they offer to both firms and FMIs Tools for testing the resilience of material services that CTPs provide to firms, such as scenario testing, participation in sector-wide exercises, cyber resilience testing and "skilled person reviews" of CTPs.
Sam Woods, Deputy Governor of Prudential Regulation and the CEO of the PRA commented:
‘It is vital that the firms we regulate can rely on services provided to them by third parties. Today's paper sets out our thinking on how we can ensure the right levels of resilience for those services - we would welcome views from anyone taking an interest in this area.’
Comments are invited until 23 December 2022. The supervisory authorities currently plan to then consult on their proposed requirements and expectations for CTPs in 2023.
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