The FCA Practitioner Panel has responded to the FCA’s proposals to increase the resilience of critical third parties (CTPs) providing key services to the UK financial services sector.
Key points in the Panel’s response include:
- it supports requiring CTPs to meet robust operational risk and resilience requirements, alongside the existing checks financial services firms comply with, to safeguard this provision;
- the Panel welcomes a balanced approach to introducing new requirements for CTPs, with the view that over-regulation could risk higher costs or drive CTPs away, which would lead to poor outcomes for firms, consumers and FMIs;
- firms’ reliance on CTPs poses risks to competition and innovation, and there has been reliance particularly on tech and data providers offering their services on a fair and equal basis, and to new entrants;
- a small number of CTPs are reluctant to adapt to new technologies which prevents innovation in the industry and an inability to force change through innovation and competition;
- the Panel suggests adding ‘potential impact on the competitiveness of the UK’ to the proposed criteria regulators will use when identifying CTPs for recommended designation by HM Treasury;
- a regulatory ‘stick’ is required to ensure CTPs support competition and innovation. The Panel suggests that the regulators write to identified CTPs emphasising that competitiveness is a key issue for the further development and success of the UK capital markets.