Building Resilient Firms: Adapting to New UK Regulations on Incident Reporting and Third-Party Oversight

New UK regulatory proposals aim to enhance financial sector resilience by standardising operational incident reporting and expanding oversight of third-party arrangements.

The Bank of England (BoE), Prudential Regulation Authority (PRA), and Financial Conduct Authority (FCA) have presented a robust framework aimed at enhancing operational resilience through detailed consultation papers, specifically CP17/24 and CP24/28. These proposals are not just procedural updates but are strategic moves designed to refine how financial institutions manage operational incidents and their relationships with third-party service providers.

The PRA’s CP17/24 targets a broad spectrum of regulated entities, excluding some smaller firms, and mandates comprehensive reporting on operational incidents. This coverage extends to all major financial institutions within the UK, including banks, investment firms, and insurance companies. On the other hand, the BoE’s guidelines are focused primarily on Financial Market Infrastructures (FMIs), highlighting the critical role they play in the financial system’s stability.

The need to improve the quality and consistency of information which regulators receive is central to these proposals. ?This involves establishing clear reporting standards for both operational incidents and third-party arrangements. The underlying goal is to identify and manage significant risks more effectively, thereby enhancing the systemic resilience of the financial sector.

Operational incidents are defined broadly within these papers. They encompass any event—singular or in a sequence—that could disrupt a firm’s services, affect client data integrity, or compromise data confidentiality and authenticity. The proposed reporting process is meticulous: firms are to promptly issue an initial report post-incident, followed by interim updates and a ?thorough final report once the issue is resolved. The assessment criteria are comprehensive, considering direct and indirect impacts on clients and the broader market, potential reputational damage, and compliance risks.

The expansion of the scope of third-party reporting is particularly noteworthy. The regulators propose to extend data collection to encapsulate all significant third-party arrangements, not just traditional outsourcing. This broad definition recognises the increasing reliance on a diverse array of third-party services which are integral to the firms’ operational functions. Under the new rules, firms will be required to provide notifications before entering into or altering any substantial third-party arrangements. They must also maintain a detailed register of these arrangements, to be updated and submitted annually.

The proposal aligns these new templates and reporting requirements with existing and forthcoming regulatory frameworks, such as the European Banking Authority’s Outsourcing Guidelines and the EU’s Digital Operational Resilience Act (DORA). This alignment aims to facilitate seamless data integration and regulatory compliance across jurisdictions.

The implications for firms are significant. Financial entities must scrutinise their current operational and reporting processes in light of these proposals. This involves evaluating existing systems, identifying necessary resources, and planning comprehensive training for relevant staff to ensure smooth adaptation to the new standards. Moreover, firms are encouraged to actively participate in the consultation process, providing feedback that could shape the final regulations, ensuring they adequately reflect practical operational concerns.

In essence, these proposals by the UK financial regulators mark a critical step towards fortifying the operational resilience of the financial sector. By standardising reporting requirements and expanding the oversight of third-party engagements, they aim to minimise the impact of operational disruptions and better manage systemic risks posed by an increasingly interconnected financial landscape.

The views expressed in this article are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.

For further insights into operational resilience in the financial sector read our article here → https://www.fticonsulting.com/uk/insights/articles/fca-operational-resilience-requirements-fortifying-financial-services