Financial market infrastructures (FMIs) such as payment systems and clearing houses are crucial to the effective functioning of both the financial system and the UK economy. The Bank of England gained significant new supervisory responsibilities in respect of FMIs following the 2007–09 financial crisis, and the Court of Directors (the Bank’s Board) has agreed the importance of ensuring that these duties are appropriately discharged.
In early 2016, Court commissioned its Independent Evaluation Office (IEO) to examine the Bank’s approach to FMI supervision, with a particular remit to evaluate whether the investments made at the time of the 2014 Strategic Plan had been effective. Court additionally emphasised the need for the Bank to keep pace with the fast-changing nature of the FMI industry, and an important aspect of the IEO’s evaluation was to examine whether the Bank’s supervisory approach was appropriately forward looking and flexible.
The IEO’s view is that the investments made by the Bank in recent years have had the desired effect. The Bank is an acknowledged world leader in the field of financial market infrastructures (FMIs) and the framework put in place for supervision has dealt effectively with the risks of the past few years. There has been a strengthening in the supervisory approach, improvements in governance and an increased awareness of FMI issues across the institution. International engagement is strong, with the Bank making effective use of the various arrangements it has in place for cross-border collaboration. Third-party reviews have also recognised the progress that has been made.
Looking ahead to the likely challenges in the FMI landscape, the IEO’s work identified scope to continue to build on these gains. The IEO’s recommendations fall into three main categories: articulating more fully the objectives and responsibilities of FMI supervision at the Bank; ensuring that the Bank has the right resourcing model for future challenges, including that FMI supervisors are supported by the wider Bank as effectively as possible; and continuing to strengthen governance, including by revisiting the question of third-party challenge.