UK Finance has welcomed the Treasury’s decision to bring third parties critical to financial services, in particular cloud-based services, under the scope of financial regulation.
Earlier this month HM Treasury published a policy statement on how it intended to mitigate risks from critical third parties to the finance sector.
Once made law, the Treasury said it would be able to designate certain third parties as being ‘critical’ to the financial sector.
UK Finance said: “This means they will then come under the scope of the financial regulators in the same way that our members do already, who will then be able to set minimum resiliency standards that those third parties must meet for any material services they provide to financial services firms.”
UK Finance said it noted that cloud service providers were seen as critical to the sector.
The Treasury’s policy statement was intended to address concerns that the small number of cloud infrastructure providers in the UK posed a systemic risk.
Cloud service providers include Amazon Web Services, which hosts 30 per cent of the cloud, Microsoft Azure 20 per cent and Google Cloud 9 per cent, other smaller providers include IBM, Salesforce and Tencent.
In July 2021 a Bank of England Financial Policy Committee meeting highlighted the risk to the sector from a reliance on a small number of providers.
A joint discussion paper from the Bank of England, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) is expected to set out the detail on how they would use such powers as granted to them by the Treasury.
In a statement UK Finance added: “We welcome both the policy statement and upcoming discussion paper. Our members have been highly engaged on this topic since the operational resilience and outsourcing and third party risk managements regulatory papers were first published, and throughout that time always acknowledged the unique and critical role a small number of third parties play in the sector. Once the discussion paper is published, we will convene member roundtables with the regulators to ensure that the full range of discussions take place.”
“Our members understand above all the significant impact that certain third parties have on their business and welcome a pragmatic, risk-based regulatory approach to them. Ensuring materials services remain resilient has never been more important to our members. The significant and unprecedented geopolitical events effecting the global economy in the last few years show have not only tested them like never before, but have also shown that they can continue to offer services to customers in spite of those events.
“Having third party relationships that you can rely on, knowing they are trying to achieve the standards as you, will bring a heightened level of comfort and confidence to the sector.”
UK Finance said it would continue to engage with HMT and the financial authorities, and provide a formal update to members through its committees.