Bank of England drafts fundamental rules for financial market infrastructure

In a consultation the Bank of England proposes requiring UK financial market infrastructure to meet 10 new Fundamental Rules. The rules are similar to the FCA’s Principles and PRA’s Fundamental Rules. The consultation closes in February 2025.

The Bank supervises UK central counterparties, central securities depositories, recognised payment systems operators and specified service providers. Last year it took on new rule-making powers in relation to CCPs and CSDs. Now for the first time it is using these powers to set legally binding regulation for all the FMIs it oversees.

The draft rules are intended to set high-level outcomes for all types of FMIs consistent with the Bank’s objectives. They would require FMIs to:

1. Conduct its business with integrity
2. Conduct its business with due skill, care and diligence
3. Act in a prudent manner
4. Maintain sufficient financial resources
5. Have effective risk strategies and risk management systems
6. Organise and control its affairs responsibly and effectively
7. Deal with its regulators in an open and co-operative way and must disclose to the Bank appropriately anything relating to the FMI of which the Bank would reasonably expect notice
8. Prepare for resolution or administration so, if the need arises, it can be resolved or placed into administration in an orderly manner with a minimum disruption to critical services
9. Maintain sufficient operational resilience
10. Identify, assess and manage the risks that its operations could pose to the stability of the financial system

Systemic stablecoins will also need to apply the Bank’s Fundamental Rules once they are brought under the Bank’s supervision. The Bank is currently developing its approach to regulating stablecoins.

Next steps

The consultation closes on 19 February 2025. The Bank plans for a six-month implementation period after it finalises the Fundamental Rules, subject to feedback on this point during the consultation.

The Fundamental Rules lay the groundwork for a broader rulebook for FMIs which the Bank will develop in due course. This future regime will include replacing obligations on CCPs and CSDs which are currently in legislation with rules to be set by the Bank.