Bank’s consultation on supervisory approach to wholesale cash distribution – December 2022

News release

The Bank of England outlines how it will use new powers to ensure wholesale cash distribution remains effective, resilient, and sustainable into the future. This will underpin continued retail access to cash for businesses and individuals.

The Bank has today published a consultation on its supervisory approach to wholesale cash distribution. This sets out how the Bank would use new powers contained in the Financial Services and Markets Bill to ensure wholesale cash distribution remains effective, resilient and sustainable into the future to support retail access to cash in the UK. The Bill is currently before Parliament.

Despite declines in the transactional use of banknotes and coins, cash remains vital for many in society, and plays an important contingency role for everyone in the event that other forms of payment are unavailable or interrupted.

The declining use of cash is also putting pressure on the wholesale distribution system, which ultimately underpins retail access to cash.  The current wholesale cash distribution system was designed for a world with higher cash usage. Cash processing volumes in the UK have fallen almost 50% since 2016. These declining cash volumes have caused inefficiencies that are putting the UK cash infrastructure under pressure, creating risks of disruption to consumers and businesses who need access to cash. Rationalisation is necessary to ensure the future viability of the wholesale distribution system, however it gives rise to risks which need to be managed effectively.

In April 2022, the Government published a policy statement recognising the potential risks to the sustainability of the wholesale cash infrastructure. It announced its intention to give the Bank of England new powers to ensure the future effectiveness, resilience, and sustainability of the wholesale cash infrastructure. These new powers are contained in the Financial Services and Markets Bill, which is currently going through Parliament. The Bill also contains complementary provisions on retail cash access services which will be under the Financial Conduct Authority’s (FCA) remit. Together they are intended to safeguard access to cash across the UK into the future.

The consultation published today sets out how the Bank intends to use its new powers in a proportionate and risk-based way to achieve this aim. These proposals cover:

• The Bank’s approach to Wholesale Cash Distribution Oversight
• Principles for the Wholesale Cash Distribution Market Oversight regime
• High-level codes of practice for participating members – consultation on detailed legal text to follow in Q1 2023; and
• Fees required to fund the Bank’s supervisory activity

In addition, should a systemic entity emerge in the wholesale cash distribution market, it will be subject to a prudential supervisory regime, similar to the one that currently applies to systemic payment systems. This is because such an entity could pose risks to financial stability and the confidence in the UK financial system. Our proposed approach to prudential supervision of a systemic entity in the wholesale cash distribution market is outlined in the consultation.

The Bank’s Chief Cashier Sarah John said:

“Today we are setting out how we plan to use new powers given to us by Parliament to ensure wholesale cash distribution remains effective, resilient and sustainable into the future. This will help underpin continued retail access to cash for business and individuals in the UK for years to come."

The Bank welcomes feedback on the proposals set out in the consultation. This consultation closes on Friday 10 February 2023.

Notes to editors

1. The Wholesale Cash Distribution system sits between the Bank, the Royal Mint (on behalf of HM Treasury), and commercial issuers issuing new banknotes and those notes/coins being sent to individual bank branches, ATMs and retailers. Activities include purchasing and taking delivery of new notes/coin; sorting, storing and circulation of notes/coin (including between cash centres); and withdrawal of unfit notes/coin from circulation.
2. The market oversight regime applies to firms which perform a relevant function in relation to a wholesale cash distribution activity, and are recognised by HM Treasury as having market significance. The prudential supervision regime applies to firms which are recognised by HM Treasury as playing a systemic role in the wholesale cash distribution market.
3. The consultation period runs for a period of 2 months and closes on Friday 10 February 2023.
4. The Financial Services and Markets Bill also includes legislation on retail access to cash. The Bill makes the Financial Conduct Authority responsible for seeking to ensure there is reasonable provision of cash withdrawal and deposit facilities, and provides the FCA with powers to carry out this role.
5. The Bill can be found at: Financial Services and Markets Bill (parliament.uk)
6. The government’s policy statement on ‘Protecting UK wholesale cash infrastructure’ can be found at: Wholesale Cash Policy Statement (publishing.service.gov.uk)