Payment system operators face new resilience requirements
The Bank of England has published a Supervisory Statement outlining its expectations for operational resilience for recognized payment system operators and specified service providers. The framework aims to protect financial stability by minimizing and mitigating payment system disruptions.
A framework for financial stability
This Supervisory Statement (SS) applies to operators of recognised payment systems (RPSOs) and specified service providers (SSPs), excluding central counterparties (CCPs) or central securities depositories (CSDs) already covered by other Bank of England statements.
The SS clarifies the Bank's supervisory approach, emphasizing that disruption to payments operations poses a direct threat to financial stability.
The accompanying Code of Practice sets binding minimum requirements, and non-compliance can lead to enforcement action under the Banking Act 2009.
The policy objective is to ensure RPSOs and SSPs are operationally resilient to disruption events, covering both minimizing likelihood and mitigating/recovering from such events.
The Bank supervises this framework using a judgement-based, forward-looking risk assessment, consistent with its approach for other financial market infrastructure firms (FMIs).
Defining resilience and its limits
The Supervisory Statement defines operational resilience as the ability of financial market infrastructures (FMIs) to prevent, respond, recover, and learn from disruptions.
It clarifies 'important business services' for RPSOs and SSPs as those whose prolonged disruption could significantly threaten payment transfer or system efficiency, impacting financial stability.
Identification factors include market share, transaction volume/value, and end-users.
'Impact tolerance' is the maximum tolerable disruption level for an important business service, which RPSOs and SSPs must set.
This tolerance considers factors beyond time, such as end-users impacted or payment value disrupted, and is distinct from PFMIs recovery times.
Strengthening the payment backbone
This Supervisory Statement formalizes and elevates the Bank of England's expectations for payment system resilience.
It underscores the critical role of RPSOs and SSPs in maintaining financial stability, moving beyond mere recovery to proactive prevention.
The detailed framework provides clarity but also imposes a significant compliance burden on regulated entities.