Bank of England Publishes Dear CEO Letters to Central Counterparties, Central Securities Depositories and Payment System Operators on Supervisory Expectations for Material Outsourcing to the Public Cloud

The Bank of England has written to the CEOs of Central Counterparties, Central Securities Depositories, Recognised Payment System Operators and Specified Service Providers subject to the BoE’s supervision, drawing their attention to the BoE’s expectations of material outsourcing arrangements, including the use of the public cloud.

The letters observe that in Q2 2021, the BoE’s Financial Policy Committee found that financial institutions had scaled up their reliance on cloud service providers since the start of 2020, leading to an increasing reliance on a small number of providers and a potential increase in financial stability risk. Reliance on third parties by CCPs, CSDs, RPSOs and SSPs is subject to existing legislation and the Principles for Financial Markets Infrastructure, which the BoE expects firms to comply with. Firms are also expected to have regard to the BoE’s policy on operational resilience and any relevant international standards.

Firms must either notify the BoE (in the case of CCPs), submit an application for authorization for outsourcing (in the case of CSDs) or seek the BoE’s non-objection (in the case of RPSOs and SSPs) if they are entering into or significantly changing any material outsourcing or sub-outsourcing arrangements, which includes arrangements with cloud service providers. Firms are recommended to engage with the BoE early to confirm whether a change they are considering requires notification. Firms must also notify the BoE, and seek the BoE’s non-objection, if they make substantive changes that could affect their compliance with conditions for authorization (in the case of CCPs and CSDs) or if there could be a material change in their risk profiles (in the case of RPSOs and SSPs).

The BoE plans to consult on its proposed expectations and policies on outsourcing by FMIs in due course.

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