Bank of England and Financial Conduct Authority Memorandum of Understanding on the Supervision of Financial Market Infrastructure

Memorandum of Understanding between The Financial Conduct Authority and The Bank of England Purpose and scope

1. This Memorandum of Understanding (MoU) sets out the high-level framework that the Financial Conduct Authority (the FCA) and the Bank of England (the Bank) will use to cooperate with one another in relation to the supervision of markets and market infrastructure. It fulfils the FCA’s and the Bank’s obligations under Schedule 17A of the Financial Services and Markets Act 2000, as amended (FSMA), to prepare and maintain a memorandum describing how they will work together in exercising their functions in relation to recognised bodies1.
2. The framework in this MoU will also be used to satisfy the Bank’s obligations under the Banking Act 2009 to consult the FCA on the exercise of its payment system oversight responsibilities2.
3. The FCA and the Bank have different mandates in relation to markets and market infrastructure.
4. The FCA is responsible for regulation and supervision of organised financial markets including Recognised Investment Exchanges (RIEs) and may make rules for this purpose where necessary or expedient for the purpose of advancing one of more of its operational objectives. The FCA is also responsible for the regulation and supervision of other trading platforms, and the conduct of participants in relation to the financial instruments and 1 Financial Services and Markets Act 2000 (legislation.gov.uk) 2A separate MoU outlines how the FCA, the Bank, the PRA and the PSR’s obligations under Part 5 of the Financial Services (Banking Reform) Act 2013 relating to the regulation of payment systems are delivered. See: Memorandum of Understanding between the Bank of England, the Financial Conduct Authority, the Payment Systems Regulator and the Prudential Regulation Authority

derivative contracts traded both on those markets and in over-the-counter (OTC) financial markets. 5. The Bank is responsible for regulation and supervision of clearing, settlement and payment systems (“post trade systems”) such as Recognised Clearing Houses (RCHs)3 and Recognised Central Securities Depositories (RCSDs) in support of its financial stability objective. These responsibilities are established primarily in FSMA (as amended), the Uncertificated Securities Regulations 2001 (as amended) and the Banking Act 2009 (as amended). 6. The responsibilities of the Bank and FCA mean that the actions of each authority may have implications for the objectives of the other. It is therefore essential that the authorities work together in exercising their functions, to ensure each is able to advance its objectives. 7. This MoU replaces the previous MoU which was adopted in 2023. This MoU does not affect any arrangements under other MoUs between the Bank and the FCA. Roles and responsibilities of the FCA and the Bank 8. In broad terms, under FSMA, the FCA is responsible for: a) regulating standards of conduct in retail and wholesale markets. b) authorising and supervising trading infrastructures that support those markets. c) the prudential supervision of authorised firms that are not PRA regulated. d) the functions of the UK Listing Authority and other functions under Part 6 of FSMA. 9. The FCA has a strategic objective to ensure that the markets for financial services function well. Three operational objectives support this: a) securing an appropriate degree of protection for consumers (including investors in financial instruments and wholesale consumers) b) protecting and enhancing the integrity of the UK financial system, and c) promoting effective competition in the interests of consumers in the markets for financial services. 3 RCH and RCSD defined in FSMA (legislation.gov.uk)

10. The FCA also has a secondary objective to facilitate, subject to aligning with relevant international standards: a) the international competitiveness of the economy of the United Kingdom (including in particular the financial services sector), and b) its growth in the medium to long term.
11. Under the Bank of England Act 1998, the Bank has an objective to protect and enhance the stability of the financial system of the United Kingdom. In pursuit of this objective, the Bank is responsible for, the supervision of RCHs and RCSDs as well as payment systems. The Bank has been given rulemaking powers where it is necessary or expedient to advance its objectives under FSMA in relation to certain RCHs that are recognised central counterparties (CCPs)4 and RCSDs.
12. Under FSMA, the Bank has a secondary objective, when advancing its primary financial stability objective, to act in a way which facilitates innovation in the provision of financial market infrastructure services (including in the infrastructure used for that purpose) with a view to improving the quality, efficiency and economy of the services.

Information exchange 13. Timely and focused exchanges of information will be essential to effective cooperation. The FCA and the Bank will share information related to markets and markets infrastructure where that information is materially relevant to both or the other regulator, both at their own initiative and upon request of the other, where legally permissible.

14. Some information is received from third parties, such as overseas supervisors. The ability to share such information may in some instances be constrained by the terms of agreements with those third parties. The FCA and the Bank will seek to ensure that these instances are minimised. Consultation in relation to entities supervised solely by the FCA or the Bank
15. The Bank will consult the FCA on issues that arise in respect of post trade systems, or participants in such systems, where it considers such issues materially relevant to the 4 Recognised central counterparty defined in FSMA (legislation.gov.uk)

FCA’s responsibilities for the supervision of trading platforms or market integrity responsibilities. These issues may include, but are not limited to: a) material changes to system rules, practices, and structures b) material changes to system access and participation requirements c) orderly wind-down, recovery and resolution plans d) material operational issues. 16. The FCA will consult the Bank on issues that arise in respect of trading platforms and OTC markets, or their participants, where it considers such issues materially relevant to the Bank’s responsibility for supervision of post trade systems, or wider financial stability. These issues will include, but not be limited to: a) material changes to trading platform or OTC market rules, practices, and structures b) orderly wind-down, recovery and resolution plans in relation to a trading platform where applicable c) material operational issues. 17. The FCA and the Bank will consult one another at an early stage wherever practicable and give due weight to each other’s views when taking regulatory action. If conflicts arise and cannot otherwise be resolved, these will be escalated through the management and governance structures of each organisation. Cooperation in respect of groups and dual-regulated entities 18. A single corporate group may contain both an entity that operates trading platforms (supervised by the FCA) and an entity that is a clearing or, payment system (supervised by the Bank) i.e., two “regulated infrastructures”. There may further be cases where a single entity (or regulated infrastructure) is both supervised by the FCA and overseen by the Bank. In such circumstances, the Bank and the FCA will coordinate the exercise of their functions according to the following principles. • They will regularly exchange information, to ensure that the supervisory judgment of each can take into account relevant information, including the risks the regulated entity faces from its wider activities or from its group, and the relationships between each activity and entity. This information exchange includes (but is not limited to) findings and conclusions on material prudential risks or key conduct risks relevant to safety and soundness, the adequacy of the regulated infrastructures or its group’s financial resources, material changes in the regulated infrastructure or its group’s

organisation, governance, risk management, or ownership, material operational stresses or incidents, and assessments of resolvability. • The FCA and the Bank will consult before, amongst other things: o withdrawing recognition/approval o issuing directions o issuing warning or decision notices (according to their arrangements for liaising with the other) o waiving rules or granting permissions that may be materially relevant to the other’s objectives o triggering resolution, where applicable o prospective changes of control. • When both exercising a function in relation to the same common issue, (e.g. assessing the fit and properness of an individual who acts in a critical role for both the FCA and Bank-supervised entities), the FCA and the Bank will consult each other, while recognising that each has distinct objectives and may therefore reach different conclusions. • With respect to the exercise of powers under Part 11 of FSMA (which contains the information gathering and investigatory powers of FSMA): o when the FCA or the Bank proposes to request information from a trading platform or a clearing house, from a connected person, or from a member or participant of such an entity, it will inform the other party where it considers there is a material risk of duplication. o when an entity or a group is supervised by both the FCA and the Bank, and one of them proposes to appoint a skilled person or an investigator, it shall notify the other. o in such cases the FCA and the Bank will, where practicable, consider whether to co-ordinate such investigation jointly and will endeavour to minimise duplication and regulatory burden falling upon the regulated infrastructure or the group as a whole. o where the authority commissioning an investigation considers its results may be materially relevant to the objectives of the other, it shall provide the other with a confidential copy of the results. • The FCA and the Bank will notify each other when imposing requirements, taking other enforcement actions, making significant public communications related to the

regulated infrastructure or its group, or where practicable, before commencing civil or criminal proceedings or making a public statement in relation to such proceedings. 19. To facilitate this information sharing and consultation, the FCA and the Bank may establish regular meetings or other arrangements. A significant increase in the assessed risk profile of an individual regulated infrastructure will prompt ad hoc discussions between the Bank and the FCA. The FCA and the Bank will seek to avoid taking regulatory actions that are incompatible or in conflict. If conflicts arise which cannot otherwise be resolved, these will be escalated through the management and governance structures of each organisation. 20. In recognition of the role played by parent companies that are not themselves authorised persons or recognised bodies, FSMA provides the FCA and the Bank with the power to direct qualifying parent undertakings of RIEs, RCSDs and RCHs in specified circumstances. Each regulator will consult the other in relation to any proposal to direct an entity that is a qualifying parent undertaking in respect of both an RCSD or RCH supervised by the Bank and an RIE supervised by the FCA. Where both regulators propose to direct such a qualifying parent undertaking, they will, so far as possible, coordinate their actions so as to minimise burdens on the group and avoid incompatible requirements. Other specific areas of supervisory cooperation 21. Under Part 2 of Schedule 17A of FSMA, the Bank may require an RCSD or RCH (or any of the other persons or entities described in paragraph 11(1) of Schedule 17A) to produce information or documents which the Bank reasonably considers may enable or assist the FCA in discharging functions conferred on the FCA under FSMA (the Part 2 Power). Where the FCA considers that information or documents within the possession or control of a person listed in paragraph 11(1) of Schedule 17A FSMA, would be of material assistance to the performance of its functions, the FCA may submit a request to the Bank and, if the Bank reasonably considers this to be the case, it will take steps in accordance with the Part 2 Power to obtain such information or documents on behalf of the FCA. 22. A request by the FCA under that Part 2 Power may include: a) information or documents relevant to assessing the adequacy of clearing or settlement arrangements proposed by a trading platform. b) information or documents relevant to pursuit of its objectives in relation to the detection and deterrence of market abuse or financial crime.

23. When undertaking an assessment of the adequacy of clearing or settlement arrangements to be provided to a trading platform by firms supervised by the Bank, the FCA will consult the Bank and seek to avoid duplicating work already undertaken by the Bank.
24. The Bank will notify the FCA of any proposal to designate a UK clearing or settlement system for the purposes of the UK settlement finality regulations.
25. The FCA will notify the Bank of any direction it gives to an RCH or RCSD in relation to market abuse investigations under section 128 of FSMA (Suspension of investigations).
26. The FCA will notify the Bank of any requirement it imposes on an institution under section 313A of FSMA (power to require suspension or removal of financial instruments from trading).
27. Other than in exceptional circumstances (see “Emergency action” at paragraph 46 below), the FCA and the Bank will consult in relation to a proposal to give a direction to an RIE, RCSD or RCH under section 166 (Part 7) of the Companies Act 1989 or take action under arrangements made under Part 4 of the Financial Services Act 2012 in relation to crisis management.
28. In the event of an actual or anticipated default of a user of trading platforms and clearing / settlement systems, the FCA and the Bank are committed to working closely together, and to communicating effectively and promptly in order to ensure that regulatory actions are coordinated. Policy and rule-making approach
29. FSMA (2023) introduces a general rule-making power for the Bank over CCPs and RCSDs so that it can take on primary responsibility for setting firm-facing regulatory requirements for these entities. This sits alongside an adjusted set of statutory objectives and principles to ensure that the Bank considers the appropriate public policy objectives when exercising this power, as well as a requirement to carry out Cost Benefit Analysis (CBA) when making rules. FSMA (2023) also provides the Bank with a power to impose requirements on individual CCPs and RCSDs. Where the Bank has determined a firm to be a systemic third country CCP, the Bank has the power to apply its domestic rulebook, in part

or in full to these firms, or to impose requirements. The Bank will notify the FCA when using its rulemaking powers over post trade systems, where relevant. 30. Under Part 5A of FSMA, HM Treasury may designate an activity if it relates to or is connected to the financial markets or exchanges of the United Kingdom, or financial instruments, financial products or financial investments that are (or are proposed to be) issued or sold to, or by, persons in the United Kingdom (Designated Activities Regime (DAR)). The FCA may make rules related to designated activities if provided for by designated activity regulations made by HM Treasury. The FCA will notify the Bank when using its rulemaking powers under the DAR, where relevant. 31. The Bank and FCA share responsibility for the UK’s derivative reporting and securities financing transactions (SFT) reporting5 regimes. The Bank is responsible for the framework for derivatives reporting as they apply to RCHs and the framework for SFT reporting as they apply to RCHs and RCSDs. The FCA is responsible for the reporting framework for all other counterparties. To maintain the efficacy of the overall reporting regime, the regimes for different reporting entities are implemented in an identical fashion The FCA is responsible for the commodity position reporting regime. The overlaps listed in this MoU should be considered non-exhaustive. 32. Where the FCA and the Bank are required to work together to amend existing or create new policies, they will agree, at an early stage, the process for how they will work together to deliver based on their respective competencies in relation to the policy area or file. This will include, but not be limited to, assigning lead authorities where appropriate and an agreed governance process, including an escalation process should conflicts arise. 33. The FCA and the Bank will, other than in exceptional circumstances (see “Emergency action” at paragraph 46 below), consult each other at an early stage about policy deliberations that might have a material effect on the other’s objectives, or the risk borne by clearing and settlement systems or trading platforms, or by OTC market participants. Under 138P(4) of FSMA, if the PRA, the Bank or the FCA makes a technical standard in which another of the three regulators has an interest, it must consult that other regulator. 34. Under Part 1 of FSMA 2023, specified assimilated law relating to financial services and markets is revoked. HM Treasury will then commence those revocations, where 5 UK Securities Financing Transactions Regulation (UK SFTR)

appropriate, to enable simultaneous revocation and replacement in the regulators’ rulebooks. Where relevant, this process may include reviews and changes to related delegated legislation and guidance. When making these changes, the Bank and FCA will consider whether their proposed changes might have a material impact on the other and coordinate appropriately. 35. Where shared assimilated law is being replaced in the regulators’ rulebooks, the FCA and the Bank will collaborate closely, including when engaging with HM Treasury regarding their plan for replacement, reviewing relevant assimilated law, assisting HM Treasury in drafting regulations repealing, restating, or modifying relevant assimilated law, and when drafting replacement regulator rules. 36. RIEs and certain RCHs may offer services such as reporting of off-exchange transactions designed to facilitate the provision of clearing services by another person (under 285(2)(b) or 285(3)(b) of FSMA). To facilitate consistent regulation of similar services, the FCA and the Bank shall consult each other on their approach to the regulation of such services. 37. The FCA and the Bank will seek to avoid introducing, inadvertently, incompatible requirements or policy positions relating to rulemaking. Where there is a serious prospect of conflict between their requirements or policy positions which would materially affect their objectives, the issue will be escalated internally and ultimately to the Chief Executive of the FCA and the Bank’s Deputy Governor for Financial Stability. Review of rules 38. The FCA and Bank are required by s.3RA and s. 300L FSMA, respectively, to keep their rules, subject to certain minor exceptions, under review in accordance with their statement of policies under s.3RB and s. 300J FSMA, respectively. The regulators can also be required by HM Treasury to review specified rules. 39. Where a regulator proposes to review a shared rule (where both the FCA and the Bank have parallel but identical or substantially similar rules in their respective rulebooks), or where it is directed to review a shared rule by HM Treasury, it will consult the other regulator before carrying out the review to discuss the best way to carry out such a review. Each regulator will also share information that may be relevant to the other’s review where permissible and, where relevant, co-ordinate the reviews and reports.

Financial services Regulatory Initiatives Forum and Grid (RIF and Grid) 40. The FCA and the Bank/PRA have co-chaired the Financial Services Regulatory Initiatives Forum (RIF) since its creation in 2020. The FCA holds a permanent secretariat role with inputs from the Bank/PRA. The Forum meets, and the Regulatory initiative Grid (Grid) is generally published, at least twice a year, where possible. The Grid sets out the regulatory pipeline. This allows the financial services industry and other stakeholders to understand and plan for the timing of the initiatives that may have a significant operational impact on them. Cooperation/coordination between the FCA and Bank/PRA is necessary for the publication of the Grid, alongside other members of the RIF. The RIF Terms of Reference6 sets out further information on the terms under which the FCA and Bank/PRA will work together. FMI Sandboxes 41. FSMA provides HM Treasury with powers to set up FMI sandboxes via statutory instrument (SI). The powers in FSMA are intended to be sufficiently flexible to enable different FMI sandboxes to be established, in order for novel technologies and practices to be tested by different entities. When new FMI sandboxes are being deployed, the Bank and FCA will discuss and agree whether a new and specific MoU is needed, setting out how they will cooperate with respect to that specific FMI sandbox. The current MoU should not be considered to have been replaced or superseded by any standalone MoU published in relation to the operation of a specific FMI sandbox. Financial crime 42. Where the Bank, is carrying out its functions referred to in paragraph 5 above, becomes aware of any evidence that it believes may be materially relevant to the FCA’s functions in relation to financial crime, it will alert the FCA.

43. The FCA will alert the Bank to any investigation, in respect of financial crime, into an operator of, a clearing, settlement or payment system, or an FCA-supervised person in the same group as a clearing, settlement or payment system, before commencing or publicly 6 The terms of reference can be accessed here: https://www.fca.org.uk/publication/corporate/financial￾services-regulatory-initiatives-forum-tor.pdf

announcing such investigation; and will inform the Bank of any actual or suspected financial crime in relation to a clearing, settlement or payment system of which the FCA is aware. Recognised Payment Systems: exercise of functions by the Bank 44. The Banking Act 2009 provides that, in exercising its powers under Part 5 of that Act to, inter alia, give directions to and impose penalties on payment system operators, the Bank must, before taking action in respect of a person or firm that is authorised by the FCA or recognised by the FCA as an RIE (or has applied for such authorisation or recognition), consult with the FCA and have regard to any action that the FCA has taken or could take in respect of the same person. 45. Where consulted in accordance with the Part 5 regime, subject to the urgency and the nature of the case, the FCA expects to respond to the consultation and notify the Bank within five working days as to whether it is considering taking action in respect of the operator. If the FCA gives the Bank such notice, the Part 5 regime provides that the Bank may not take action unless the FCA consents, or the notice is withdrawn. The FCA will give such notice only if it reasonably expects that the action it is considering would address the Bank’s concerns and will confirm as soon as reasonably practicable, and usually within no more than three months, whether it intends to take action. In this circumstance it is also envisaged that the FCA will provide regular updates to the Bank with regard to the action being taken. Emergency action 46. It is important that the FCA and the Bank have the ability to act quickly where appropriate to advance their respective objectives. In that context, in particular market conditions or other relevant circumstances, the precise arrangements set out in this MoU may not be compatible with one or more of the parties advancing its objectives with the urgency required. For example, where justified, action may need to be taken without consultation. In this case, the FCA or the Bank will provide the other with notice as soon as practicable of the situation and the action taken, or proposed to be taken.

Cooperation regarding representation of the UK at international meetings 47. The FCA and the Bank will establish arrangements for exchanging agendas for, and relevant information relating to areas of common interest from global for a (e.g. BCBS, IOSCO) as appropriate and consistent with the MoU on international organisations7. Confidentiality 48. The FCA and the Bank will protect the confidentiality and sensitivity of all unpublished regulatory and other confidential information received from the other. 49. Without prejudice to the obligations a regulator may have to use or disclose information in relation to enforcement proceedings or otherwise, each regulator will endeavour to consult the other, where practicable, before: a) passing the information to a third party b) using the information in the context of enforcement proceedings or other court case where it is likely to become publicly disclosed. It is recognised that it may, over time, become more difficult to identify the source of certain types of information.

50. Where appropriate, the regulators will liaise in responding to requests made under the Freedom of Information Act 2000, the UK General Data Protection Regulation, the Data Protection Act 2018 and any future legislation that may supersede or supplement these Acts and this Regulation and will consult before releasing information received from the other. Maintaining the MoU

51. The FCA and the Bank will each appoint a senior executive responsible for cooperation between them under this MoU. Where an appointed executive so requests, and at a minimum annually, the appointed executives will meet to review whether the arrangements set out in this MoU are proving effective.

52. The Chief Executive of the FCA and the Bank’s Deputy Governor for Financial Stability will review each year how the MoU is working. The Bank and the FCA will each publish a summary of the key points from those reviews. 7 bank-pra-hmt-and-fca-international-organisations.pdf (bankofengland.co.uk)

53. Feedback from trading platforms and from clearing and settlement systems on how cooperation is working from their perspective will be an input to those reviews. Both the FCA and the Bank will make a judgment on whether there has been a lack of co-ordination or unnecessary duplication between them in pursuit of their objectives. The relationship between the FCA and the Bank and the PRA

54. FSMA provides that the FCA, PRA and the Bank must prepare and maintain a memorandum of understanding setting out how they plan to work together in exercising their functions in relation to recognised bodies that are, or are members of the same group as, PRA authorised persons. At present there are no such entities. If that changes, this memorandum will be updated.