The financial sector increasingly relies on services provided by third parties, allowing it to embrace innovation and improve efficiency. However, large parts of the sector rely on a small number of third parties for key services. The impact of disruption to these services could spread through the financial system and threaten financial stability, market integrity, or trigger a loss in confidence.
For this reason, Parliament legislated to allow HM Treasury (HMT) to designate these third parties as ‘critical third parties’ (CTPs) and bring them under the regulators’ remit. The aim of this legislation is to create a more operationally resilient financial services sector. HMT could designate any third parties providing existing and emerging technology and non-technology services to the financial sector as CTPs, if disruption to these services could pose systemic risk.
Today we are publishing a package under this legislation establishing a CTP oversight regime ahead of HMT’s future designation decisions. Since 2022, we have worked with industry to create an effective and proportionate regime. The regime will not change the accountability of financial services firms, their boards and senior management for remaining operationally resilient, including when they rely on services provided by third parties.
Managing the risk of disruption to the services that firms and, by extension, consumers and markets, rely on is vital for safeguarding the UK’s reputation for stable and secure financial services, which underpins the UK’s attractiveness as a place to do business.
The UK is not alone in addressing the risks posed by CTPs. We have designed the CTP oversight regime to be compatible with similar approaches in other jurisdictions where appropriate and will continue our dialogue with international counterparts to strengthen cross-border cooperation.
We hope that this new regime will make a useful contribution to the success of the financial services sector in the UK and welcome your engagement with it as we move into implementation.
Nikhil Rathi,
Chief Executive,
Financial Conduct Authority
Sarah Breeden,
Deputy Governor,
Financial stability, Bank of England
Sam Woods
Deputy Governor,
Prudential Regulation and Chief Executive of the Prudential Regulation Authority